Asset Allocation: Small, Med & Lrg Cap. Value vs Growth

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ataloss
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Post by ataloss » Sun Sep 07, 2003 2:36 am

subscribers to Richard Russell's Dow Theory Letters were digesting his recent call to increase their asset allocation for gold and gold shares from 5%-10% to "at least one-third" of their liquid assets.

Although the publisher and editor of the market newsletter has been singing the praises of the yellow metal since the beginning of the year, his late August recommendation was noteworthy, in light of gold's already comfortable rise, and for the size of the allocation he suggested.

Investors should "sell whatever they have to" to buy gold and gold stocks, says Russell, although he didn't specify which stocks he liked in a recent interview. The analyst and onetime writer of technical articles for Barron's, who called the bottom of the '74 bear market, explains that "the U.S. is inflating its head off and depreciating the dollar's head off."


from barrons yesterday
Have fun.

Ataloss

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Post by raddr » Sun Sep 07, 2003 3:36 am

ataloss wrote:
The analyst and onetime writer of technical articles for Barron's, who called the bottom of the '74 bear market, explains that "the U.S. is inflating its head off and depreciating the dollar's head off."


Why more people don't recognize this is beyond me. :?

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Post by wanderer » Sun Sep 07, 2003 5:40 am

Why more people don't recognize this is beyond me.

:lol:

They think, because the market overvaluation has dropped from 150% to 45%, it's not overvalued. :shock:Gonna be an interesting 10 years.
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wanderer

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Post by peteyperson » Sun Sep 07, 2003 9:34 am

I think it is more simple.

I think most people don't know how to value the market, what average is and so are not aware of the problem. This seems borne not just by those people ignoring market fundamentals in the go-go internet years but also by the number of retired people in newspaper articles last year complaining that they lost 30% and had to return to work. If they had known how to value the market, they would have assumed the average P/E equivalent aka the intrinsic value of the stock market investments and not the present inflated price. This would have told them to hold of FIRE until they had enough money! Therefore a lot of them seemed to make the wrong decision due to a lack of understanding in my view.

Futhermore, if they had understood the nature of the markets, they would have expected 30% occasional substained drops in the market and have an asset allocation that planned accordingly. I didn't have a tremendous amount of sympathy for these people who had brains but hadn't used them to learn what they should be doing. In contrast, many here including myself are learning the how before they have the funds in place. Makes for smarter decision making all the way down the track if you ask me!

:lol:

Petey
wanderer wrote: Why more people don't recognize this is beyond me.

:lol:

They think, because the market overvaluation has dropped from 150% to 45%, it's not overvalued. :shock:Gonna be an interesting 10 years.

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Post by wanderer » Sun Sep 07, 2003 3:05 pm

petey -

this assumes that there is a P/E that P/Es mean revert to. In my investing lifetime, the mean P/E has gone from 12 to 13 to 14 to 16 to (guessing now) 18 or 19 or so. IIRC, Ben Graham didn't invest at various times because the 'normal' P/E was 7 or so. :shock:

This is one of the pleasant things about the much derided Tobin's Q: there is a mean to revert to - BV adjusted for replacement cost/inflation.
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wanderer

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Post by peteyperson » Sun Sep 07, 2003 11:00 pm

Well 14.1x is just the mean average. I'm not suggesting it moves back on the dot and waves a flag, calls a bunch of reporters and yells, "I've mean reverted, pls report it!" You speak often that there are indicators like Tobin's Q that all show a 40-50% over valuation of the S&P 500, so by all means use a variety of indicators and take the average between them perhaps. I don't buy that the P/E has changed over time, that is usually BS from people trying to get more activity in the market when the market is overvalued and activity has dipped. I have seen nothing to prove a different number, so I still use the average. I would be interested to see what the average P/E would be following the war till now.

Regarding different measurements, I think we're both speaking the same language even if yours is American English!

Sidebar: I was talking to a Polish guy yesterday who used, " Wassup! " as a greeting. I told him that to an American that means, " How are you? ", to a Brit it means, " What's wrong? ". The phase is getting used here in both situations now with the influence of American TV & movies and I'm sure this guy picked it up from that source back home!)

Petey
wanderer wrote: petey -

this assumes that there is a P/E that P/Es mean revert to. In my investing lifetime, the mean P/E has gone from 12 to 13 to 14 to 16 to (guessing now) 18 or 19 or so. IIRC, Ben Graham didn't invest at various times because the 'normal' P/E was 7 or so. :shock:

This is one of the pleasant things about the much derided Tobin's Q: there is a mean to revert to - BV adjusted for replacement cost/inflation.

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Post by wanderer » Mon Sep 08, 2003 12:31 am

Well 14.1x is just the mean average.... I don't buy that the P/E has changed over time...

But the long term average has changed, right? The average PE was x in 1980 (over the previous 54 yrs or so) and it was x+y in 1995 (over the previous 69 years) and it is x+y+z in 2002 (over the previous 76 yrs). Non?
regards,

wanderer

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peteyperson
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Post by peteyperson » Mon Sep 08, 2003 4:52 am

14.1 is the often quoted figure. Bogle using Siegel's data current to 1997 indicated the historical was in the low 14s.

Do you have more recent information?

The PE10 may well differ a little.

Petey
wanderer wrote: Well 14.1x is just the mean average.... I don't buy that the P/E has changed over time...

But the long term average has changed, right? The average PE was x in 1980 (over the previous 54 yrs or so) and it was x+y in 1995 (over the previous 69 years) and it is x+y+z in 2002 (over the previous 76 yrs). Non?

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