The conquest of inflation was a landmark accomplishment with enduring benefits, but it came with heavy costs. After a brief recession in 1980 and a short rebound, the economy slumped deeply in 1981 and 1982
Among other factors, indicators of extremes of euphoria seem much more important than price
CAPE is ignorant of interest rates
Using trailing twelve months earnings that are impacted by a recession is a mistake
They looked at the allocation between stocks, bonds and cash. They found that over 95 percent of the funds’ returns came from their asset allocation.
Going parabolic and other lies
In such an environment, many investors actually consider investments they are making are low risk when, in fact, they are higher risk.
I am not attuned to this market environment, and I don’t want to spoil a decent record by trying to play a game I don’t understand just so I can go out a hero.
The cash in the portfolio may be enough to take advantage of the opportunity. Or it may not be enough. It doesn’t matter. The investor is in the delicious position of comparing the new opportunity with all other holdings in the portfolio.
Wrap up on the drawbacks of CAPE. A fair level for price earnings ratios has changed over the years.