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URL:  https://boards.fool.com/galagan-wrote-ben-wrote-quotyear-2000-era-18988045.aspx

Subject:  Re: The hocus plan: 4% from 100% FI? Date:  5/1/2003  3:19 PM
Author:  BenSolar Number:  104979 of 881184

galagan wrote:

Ben wrote: "Year 2000 era results, however, should be tremendously improved by the switching, as valuations were dramatically worse than even the 1929 era."

At what point would this strategy have gotten you out of the market? I know that at least some valuation-based models took people out extremely early, and so one missed most of the up-move as well as the down-move.

Also, would this strategy still have you with no stock exposure today even after the significant fall in prices?

I presume there are multiple answers depending on which level you pick to switch, but I'd be curious even with a rough idea of when the switch might have been made.


You've answered yourself pretty much. Any valuation based switching that relied on being out of (or reducing exposure to) the market as the market approached levels that were 'very high' in the past would have had you out (or at decreased allocation) no later than mid 1995, and possibly as early as 1991. And you'd still be a the lower allocation now.

You can browse the historical record here: http://www.econ.yale.edu/~shiller/data/ie_data.htm to get a clear picture of how the valuations changed.

I personally tend to lean towards a reduced allocation, but not a 0% allocation when overvaluation hits, because then you can still get the 'rebalancing bonus'. I also tend towards finding other classes of equities with higher predicted return rather than defaulting to 'FI'

Ben
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