Diversification & Rock Bottom Valuations In the Third Pillar

Rob Arnott and Christopher Brightman of Research Affiliates recently discussed the allocation and performance of PIMCO All Asset Fund, which goes outside mainstream investments into what they describe as the Third Pillar. Arnott explains that a three-year bear market in Third Pillar investments has impacted investors’ outcomes and outlooks. Although the fund’s 7% loss from 2013 to 2015 is significantly better than the relevant benchmarks, it appears disappointing in light of the excellent performance of… Read More

Negative Implications of Falling Corporate Profit Margins

In his MarketWatch column, Mark Hulbert explains the distressing news buried by much of the recent positive reporting on the upward revision of GDP earlier this month. “Though the government’s upward revision of GDP growth looked positive on the surface,” he says, “a deeper look at the data shows the stock market currently is on shaky ground.” The report revealed that corporate profit margins (profits as a percentage of GDP) “experienced one of their largest… Read More

Jeremy Siegel’s Critique of the Shiller P/E Ratio and His Market Outlook

Financial Advisor reports on Wharton School of Finance Professor Jeremey Siegel’s comments at the annual Inside ETFs conference, where he critiqued the widely used Shiller P/E Ratio. Siegel did not necessarily attack the original logic of the Shiller P/E (which won its creator, Robert Shiller, a Nobel Prize). Instead, he noted that changes to the definition of generally accepted accounting principles (GAAP) earnings by Standard & Poor’s in 1990 have had an effect. Following the Financial… Read More

Malkiel Warns of Expensive Market and Lower Future Returns

Burton G. Malkiel, CIO of Weathfront and author of the best selling investment book, “A Random Walk Down Wall Street”, offers advice for investing in an expensive market in the Wall Street Journal. He says: “U.S. securities markets are highly priced at the start of 2016, and future returns will most likely be lower than in the past. But the timeless lessons – keep invested, don’t try to time the market, and diversify broadly –… Read More

Stock Market May Not be as Overvalued as Some Believe

Larry Swedroe of Buckingham (independent member of BAM Alliance) says that stocks are not nearly as overvalued as many leading commentators and analysts suggest. He offers six reasons  that, he says, “lead me to conclude that the market, at the very least, is not dramatically overvalued” and “may not even be overvalued at all, just more highly valued.” These are: Use of 135-year historical mean Changes in accounting rules Changes in propensity to pay dividends… Read More

AQR Tests Market Timing Techniques, Helping to Boost Long Term Returns

  A recent article by Cliff Asness and colleagues from AQR Capital Management challenges the academic finance recommendation to avoid attempts to time the market. “Sinning a little,” Asness and colleagues suggest, can boost returns.  Among other things, they suggested trimming exposure to stocks in October 2015, as the article went to print, by holding more cash. The article uses two core factors – valuation, measured by the cyclically adjusted PE (CAPE) factor made known… Read More

Shiller Voices Concerns Over Market

Prof. Robert Shiller is voicing concerns over multiple factors right now, including the high CAPE ratio (the P/E of the market using 10 years’ worth of earnings) and the increased volatility in stocks. The large downward moves recently in equities have led many investors to pay much closer attention to the market’s daily movements, especially on down days. This hyper-attention to downside volatility could result in another move down as investors sell or react to… Read More

Fisher Says Shiller P/E Not a Helpful Timing Tool

In an interview with Steve Forbes, Kenneth Fisher says that dollar-cost averaging isn’t a smart strategy over the long run, and says the increasingly popular 10-year “Shiller” P/E isn’t a great tool for making investment decisions. In this clip, Fisher says the Shiller P/E is “only a little predictive” of stock returns over the long haul, and offers no help predicting returns over 1- to 3-year periods. In the full interview, Fisher also discusses how… Read More

The Shiller P/E: In Need of a Revision?

Does the “Shiller P/E” need a revamp? Some well-known strategists say yes, but others — including Yale Economist Robert Shiller himself — say no. While most strategists and publications use shorter-term earnings in developing price/earnings ratios, the Shiller P/E — also known as the 10-year P/E — compares a company’s average earnings over the past decade to its current price as a way to smooth out short-term earnings fluctuations. Right now, according to The New… Read More

The 10-Year P/E & Portfolio Strategy

In a recent piece for Advisor Perspectives, Keith C. Goddard, CFA, presents some intriguing data on how investors might use the 10-year “Shiller” P/E ratio to adjust their exposure to equities. In the article, Goddard measures the distributions of returns that have followed various starting-point valuation levels in the stock market using the 10-year P/E, which was pioneered by Yale economist Robert Shiller. Looking at every three-year period (measured by month-end) going back to 1884,… Read More