Golden Butterfly rebalancing bands

General Discussion on the Permanent Portfolio Strategy

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pmward
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Re: Golden Butterfly rebalancing bands

Post by pmward » Mon Apr 06, 2020 9:46 pm

CJ043332 wrote:
Mon Apr 06, 2020 9:23 pm

I see... the CAPE is wrong AND the Ph.D's that backtested the CAPE at Vanguard are ALWAYS wrong... oh wait, but wouldn't your argument than make the CAPE right (since their argument was that the CAPE was not a predictor in the short term)? :o

I kid, but seriously...

TLDR, "You have no real evidence to support your claim of 0% predictability of CAPE, and dislike people with PhDs." :)

No judgement... I have no PhD, so I am not offended.
Haha, yeah I'm just a skeptic. While I do tactical investing, I use multiple indicators so I don't put all my eggs in one basket, and I do not use valuation metrics at all. I mean, who even knows what valuations really are? S&P 500 aggregate corporate profits peaked all the way back in 2012, but earnings per share kept going up. How does this happen? Financial engineering. It's companies levering up to do buybacks. I would say the market is more "overvalued" than it appears for this reason.
CJ043332
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Re: Golden Butterfly rebalancing bands

Post by CJ043332 » Mon Apr 06, 2020 11:23 pm

pmward wrote:
Mon Apr 06, 2020 9:46 pm
CJ043332 wrote:
Mon Apr 06, 2020 9:23 pm

I see... the CAPE is wrong AND the Ph.D's that backtested the CAPE at Vanguard are ALWAYS wrong... oh wait, but wouldn't your argument than make the CAPE right (since their argument was that the CAPE was not a predictor in the short term)? :o

I kid, but seriously...

TLDR, "You have no real evidence to support your claim of 0% predictability of CAPE, and dislike people with PhDs." :)

No judgement... I have no PhD, so I am not offended.
Haha, yeah I'm just a skeptic. While I do tactical investing, I use multiple indicators so I don't put all my eggs in one basket, and I do not use valuation metrics at all. I mean, who even knows what valuations really are? S&P 500 aggregate corporate profits peaked all the way back in 2012, but earnings per share kept going up. How does this happen? Financial engineering. It's companies levering up to do buybacks. I would say the market is more "overvalued" than it appears for this reason.
I hear ya. I definitely think that we have really drifted from fundamentals. Fundamentals can really be distorted by psychology and manipulation.

The only metric that is always guaranteed is that almost everyone is chasing a quick buck, making short-term movements impossible to predict.

That Vanguard study showed every single indicator had basically no predictability over 1 year and over 85% of them had practically no correlation over 10 years. The remaining were still not "very strong". So you definitely don't seem wrong in your views.

I view the CAPE as a drunk weatherman that is pretty good at saying it will snow in winter and rain in the spring. He has no clue what the weather will be tomorrow or the next day. In fact, it might not even snow at all during the winter. So although I am not going to migrate to Florida, it doesn't really hurt me to put a snow brush in my car just in case. Just balancing that little extra risk with a little extra preparedness.

If you think about it, it is really logical. As long as some people pay attention to P/E (which any Graham/Buffett follower would do), P/E will continue to at least be a whisper of reason in equity prices. After-all, lot's of people in the world still see a stock with negative P/E as bad luck :) Their choosing not to buy that stock still affects the price, even if others don't care about it. It isn't that fundamentals have NO SAY, it is that they are drowned out by all the other factors. However, those fundamentals are always there acting as a drag to some extent (even if it is a small drag when faced with massive fed intervention and speculation). That's also what the data seems to reflect.

I think it would also explain how both you and those PhD's can both be right in your views :)
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