The only Constant is Change

cape change financial planning indicators investing wealth Mar 19, 2024

Tom and I were chatting recently about Well One and he said that it looked like I had recently added an technical indicator. I replied that I had and that was because as we have been discussed in The 4 Cs or The New Normal, the world is changing and so we need to adapt our investment strategies to the new reality. 

That doesn't however, mean we are jettisoning our investment principles or the investing concept we use. But it does mean we need to look at markets differently. 

Many people pride themselves on not changing their mind especially those that adhere to one way of economics or investing. I see many economists cling to outdated theories because they have been supporting those theories to their clients who pay them for advice. A simple example is the always "buy and hold" crowd, regardless of whether the market is crazy expensive or crazy cheap. 

It is the same with styles. Many investors categorise themselves as a value investor, a growth investor, a small caps investor etc. AT the same time they will tell you they believe in mean reversion for example.

So if you believe in mean reversion then you would see that Emerging Markets are cheap and the US is expensive. Or large caps have crushed small caps. Or that growth investing has outperformed value for the past decade. 

If you adhere to your category "I'm a value guy", then you are admitting that you don't actually believe in mean reversion. If growth stocks are cheap and value is expensive, why not adjust your investment strategy to harness the gains from growth. 

Should investors ignore CAPE (and its excellent track record of protecting capital) because "I'm a buy and hold guy"?

This makes absolutely no sense to me. 

I hope it is the same for you.  




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