GoSeigen wrote:Bubblesofearth wrote:
Early stages? US and Japanese markets are up 2.5X over the past 10 years. CAPE ratio on the S&P500 is sitting around 34, some 1.7 standard deviations above its long-term average.
BoE
EDIT: Added 2. below.
1. What's the point of this quibble?
2. What are the practical limits of the S&P's deviation from "its long-term average"? Can the average itself not increase? Can the index not remain above its average for long periods? Can profitability not improve? Is inflation impossible?
GS
In the comments about tracker funds, I see some possible misconceptions. As I understand it, tracker funds buy the market constituents at their index weight. If that index weight changes, so does the value of their holdings, so no buying or selling is needed. If the have to create more units or dispose of units, then presumably they buy or sell all the holdings at market weight at the time. This surely can only affect the index as a whole.
My personal preference is to adopt an equal weighting approach, where a new holding is bought at my median holding value. Once bought they invariably deviate from median value. If they exceed a certain multiple of the median value, then I trim the holding by 25%. This is then reinvested in the lowest valued holding with the highest yield. This avoids investing in any share not currently paying a dividend or depressed because it has reduced its dividends considerably. Often the holding trimmed has a lower than average yield, because the price has risen so much.
Because I am seeking to increase dividend income, this approach helps me to achieve my objectives. It also tends to make my portfolio outperform the main index, from which most of my holdings have been drawn. This is, I feel, the reason why equally weighted indices tend to outperform the market weighted indices.
Looking at the relative price movements of my holdings during successive calendar years, it is obvious that this year's winners are often drawn from last year's losers. Hence the system ensures that buys are usually at a low price, while sales are at high prices.
Apart from the fact that an equal weighted portfolio is far more suited to a private investor, this system should lead to enhanced returns and outperformance.
TJH