Vanguard Life Strategy

Gadfium

jamesd wrote: »

I suppose that name means something to someone but I was referring to the work that led to Robert Shiller getting the 2013 Nobel Prize for economics.

I know...I was being daft. There was a regular vociferous poster that used to frequent these parts. Along with wild claims of being able to pick winners (always reported AFTER the event) and holding a portfolio that seemed to change on an hourly basis, he was also found of using CAPE.

Pay me no heed, I was having a chuckle to myself. :beer:

grey_gym_sock

jamesd wrote: »

That is not what the research found. It found a consistent increase or decrease as CAPE increased or decreased.

a consistent increase/decrease in the subsequent average returns? but with such widely different results behind the average that the average tells you little?

part of the problem is translating your CAPE data into a strategy. e.g. sell the US - or just underweight it - when CAPE is above average (how far above average?), and do what instead with your capital? stay in cash? invest in markets with low CAPEs? if the latter, how concentrated are you prepared to be in russia, or wherever has low a CAPE?

you need to spell out your CAPE-influenced strategy more explicitly. from what i've seen, attempts to do that don't necessarily give higher returns than ignoring CAPE (and instead using a fixed asset allocation for each region/market). and it's not obvious whether jumping in and out of different markets is actually lower or higher risk than a fixed allocation.

US CAPE has been "high" for most of the last 25 years. are you suggesting investors should have avoided the US for most of this period? how did that work out? this relates to my second point (in my previous post): that there are good reasons why CAPE should be higher in recent years.

JohnRo

grey_gym_sock wrote: »

..if the latter, how concentrated are you prepared to be in Russia, or wherever has a low CAPE?

That sums up the flaw nicely, I'll stick to simple rebalancing in an attempt to capture value.

jamesd

grey_gym_sock wrote: »

a consistent increase/decrease in the subsequent average part of the problem is translating your CAPE data into a strategy. e.g. sell the US - or just underweight it - when CAPE is above average (how far above average?), and do what instead with your capital? stay in cash? invest in markets with low CAPEs? if the latter, how concentrated are you prepared to be in russia, or wherever has low a CAPE?

You can read what Shiller did based on his CAPE data:

'My Italy bet paid off': Prof Shiller on his new European 'Cape' fund
Shiller Says Buy Russia

grey_gym_sock wrote: »

you need to spell out your CAPE-influenced strategy more explicitly

I'm not expounding any particular strategy, what I am doing is noting that theory says many major markets are currently overvalued and that now is a time when buying is likely to produce lower than average returns. Up to each person to decide whether they want to react to those findings or not, and how.

grey_gym_sock wrote: »

US CAPE has been "high" for most of the last 25 years. are you suggesting investors should have avoided the US for most of this period?

Of course not, there were plenty of times when it was low and I made nice profits from buying into shares starting in 2008/9 when it was low in many major markets. But we're not in 2008/9 now.

What I've personally been doing is moving into P2P, which for me appears likely to deliver higher than average long term UK stock market returns and lower volatility. At least until the next big market drop when I'll happily switch back into heavy use of equities in much cheaper markets.

Cactus_Jack

Ok, I finally read every post in this thread! It's been interesting and informative.

I've never invested before outside of my pension, and I have begun with VLS80 for the core of my portfolio.

I'd like to start some small satellite investments.

For one of them, I'm tempted to go with the Woodford Equity Income fund as was mentioned a few pages back.

I am impressed with Woodford's proven track record and the fact the fund produced a positive return while the market was down. However, I am concerned about overlap with VLS and my pension - both of which invest in the UK. I'm not sure how to feel about it as I may be missing out on the good stuff thats happening over at that fund, due my overlap concerns.

Edit: I have compiled a list of funds that interest me. I do realise there may be overlap in some (but I'm not sure to what degree), but would appreciate any opinions.

Scottish Mortgage investment trust
Fidelity Special Values
Fundsmith Equity
Stewart Investors Asia Pacific Leaders
AXA Framlington Biotech

I was somewhat inspired by the following article: http://www.telegraph.co.uk/finance/personalfinance/investing/12150641/A-portfolio-thats-80pc-sensible-20pc-fun-build-your-coresatellite-Isa-plan.html

gadgetmind

I've found that being globally diversified has worked very well, particularly recently given the FTSE's large exposure to mining and oil.

ColdIron

Cactus_Jack wrote: »

I'd like to start some small satellite investments.

Vanguard Global Small-Cap Index might sit nicely with it. Global, cheap and not much overlap

It would dilute your bond allocation a little, as would your other suggestions. What proportion are you thinking for your VLS core?

Cactus_Jack

ColdIron wrote: »

Vanguard Global Small-Cap Index might sit nicely with it. Global, cheap and not much overlap

It would dilute your bond allocation a little, as would your other suggestions. What proportion are you thinking for your VLS core?

I hadn't considered bond dilution - thank you for that. I feel OK about that for now as I'm hoping to hold long-term, and will be keeping more in cash than in stocks, at least until I feel I've learned enough.

I was thinking 80% VLS and 20% other stuff but since reading that article I'm tempted to go 60% VLS, 10% Woodford, 10% Scottish Mortgage and the 20% in 'riskier' investments probably in 5% chunks.

However I have found on Charles Stanley Direct a couple of the funds (Scottish Mortgage, Fidelity Special Values) I mentioned are treated as shares rather than funds, so would cost £10 per trade, which means I will have to drop those or place a lump sum.

ColdIron

Scottish Mortgage and Fidelity SV aren't funds (unit trusts/OEICs), they are Investment Trusts so are shares and will be charged as such

If it's not an ISA there's no compelling reason to keep everything with CSD. Hargreaves Lansdown have a reduced monthly investing fee of £1.50 per trade and charge nothing to hold ITs unlike CSD's £10 and 0.25%. Might be an option. I'd read up on the difference between funds and ITs before you buy

darkidoe

jamesd wrote: »

That is not what the research found. It found a consistent increase or decrease as CAPE increased or decreased.

Interesting chat about CAPE. My own strategy is very much trying to capture returns roughly based on the CAPE values. I slightly less weighted in US relative to the global market cap allocation for the US. Have you found any evidence for boosting returns based on CAPE based on your own experience?