We don't agree there, because the charts for CAPE in the past (recent past even) had DIFFERENT forecasted ranges of returns and risk, and turned out to be wrong, so I don't know why you hold today's charts in such high esteem.hopefully we agree that the CAPE as depicted in the chart has some relevance to forecast ranges of returns and risk, and (by implication) to financial planning, and potentially to asset allocation.
We agree that all the charts show, in general, higher CAPE numbers have led to, in general, lower 10 or 15 year returns.
But the forecast ranges, already unprecise, with fairly large ranges, turned out wrong in the past, and not just one or two certain 10 or 15 year periods, but pretty much EVERY 10 or 15 year period since CAPE was formulated in 1988. CAPE went "high" in 1990, and remained there 99% of the time, forecasting low to very low returns for every 10 year period from 1990 through 2024 (with a few months in 2009 being the lone exception).
But we didn't get low or very low returns every 10-year period since 1990, have we? In fact, most 10-year periods (not just 1 or 2 anecdotes) have done fairly well, or extremely well.
Except just 10-20 years ago, Shiller and other financial experts suggested people should adjust their financial planning and their asset allocation to reflect the expected return range and the range of shortfall risk depicted in the chart in the CAPE 20-25 range. They had relatively high confidence, because they saw 100+ data points in that range across global, relatively independent markets, and probably across independent time periods, and they saw a distinctively range bound regression aggregate over the entire history of modern financial markets.I personally adjust my financial planning and my asset allocation to reflect the expected return range and the range of shortfall risk depicted in the chart in the CAPE 30-40 range. I have relatively high confidence, because I see 100+ data points in that range across global, relatively independent markets, and probably across independent time periods, and I see a distinctively range bound regression aggregate over the entire history of modern financial markets.
Do you see what I did there? They put the exact same faith in the exact same methodology that you are today.
And yet now 20-25 is considered mostly normal, and anyone who "adjusted" in the past few decades on those 100+ data points, from the entire history of modern financial markets that showed CAPE 20-25 as dangerously high, has less money.
That's all I'm saying.. You may 100% be right that adjusting on CAPE of 30-40 will be helpful going forward. But trusting the charts doesn't make a lot of sense, because trusting charts from 10-20 years ago, they told a different story (CAPE 20-25), and were not helpful going forward.
Statistics: Posted by HomerJ — Fri Dec 06, 2024 10:03 am — Replies 445 — Views 41416