Looking for Investment Ideas

[Surreal]

@Fotheringay-Phipps

Bottom line is that IMHO, buying stocks when the market is at an all-time high and P/E ratios are seriously stretched might not be the best idea. I myself am not looking to sell what I already have (for a number of reasons), but I wouldn’t be looking to buy in at this time. No guarantees, or course.

Yes, there is some evidence that suggests that valuation-based market timing can improve risk-adjusted returns:

Journal of Financial Planning

[ul]
[li]Studies examining the value of active management strategies tend to analyze performance within asset classes against narrowly defined benchmarks; there is little research analyzing tactical asset allocation strategies that change allocations among asset classes, rather than within them.[/li]
[li]The distribution of expected returns and volatility are statistically significantly different at valuation extremes than they are from the general distribution of returns. As a result, the efficient frontier itself can shift because of varying capital market assumptions across different valuation environments, which in turn implies that asset allocations should change as market valuations change.[/li]
[li]A basic market-valuation-based tactical asset allocation strategy that underweights equities (relative to bonds) in overvalued environments, and overweights equities in favorably valued environments, can lead to higher returns and improved risk-adjusted returns.[/li]
[li]The results for improvements in return and risk-adjusted returns hold up on an ex ante analysis and a historical analysis.[/li]
[li]The improved results—comparable to the value of rebalancing—are sustained even when accounting for reasonable tax assumptions, in large part because of the relatively low turnover necessary to achieve improvements through basic tactical asset allocation strategies.[/li][/ul]