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Wednesday, January 4, 2017

Ritholtz on 2017


Ritholtz - what history tells us about your investments. Some general advice about investing this year, plus a fantastic kick in the teeth to those who blather about Shiller PE:

Let’s start with CAPE — the cyclically adjusted price-to-earnings ratio. Think of it as the 10-year P/E ratio. It is high for U.S. equities by historical averages, elevated for Japan, moderate for Europe and low for emerging markets. Those are simple facts.

If I wanted to scare people, I could selectively pull data showing that at present we have the highest reading outside of 2000 (43.2), 1929 (32.5) and 2007 (27.6). But cherry-picking dates to scare people is bad form, and I prefer to use the data to look for evidence.

What does it show? Since 1990, the S&P 500 has traded above the average CAPE ratio in 307 of 324 months — that’s 95 percent of the time. If you abandoned U.S. equities when the CAPE ratio was overvalued, you would have missed gains of more than a 1,000 percent over that time.

Don't get suckered by all the CAPE nonsense. The market goes up til it goes down, it's rich when people are optimistic, and there's no such thing as divining the future whether by casting runes or tarot or simplistic technicals.


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