Comments on: Increasing equity allocation in severe bear markets http://www.canadiancapitalist.com/increasing-equity-allocation-in-severe-bear-markets/ Helping you invest and prosper Sun, 12 Feb 2012 00:54:40 +0000 hourly 1 http://wordpress.org/?v=3.3.1 By: Equity Allocation In Bear Markets and Investing Once a Month http://www.canadiancapitalist.com/increasing-equity-allocation-in-severe-bear-markets/#comment-470543 Equity Allocation In Bear Markets and Investing Once a Month Thu, 07 Apr 2011 15:22:56 +0000 http://www.canadiancapitalist.com/?p=1854#comment-470543 [...] Canadian Capitalist wrote about increasing equity allocation in severe bear markets. [...] [...] Canadian Capitalist wrote about increasing equity allocation in severe bear markets. [...]

]]> By: Canadian Capitalist http://www.canadiancapitalist.com/increasing-equity-allocation-in-severe-bear-markets/#comment-185935 Canadian Capitalist Fri, 20 Mar 2009 19:13:30 +0000 http://www.canadiancapitalist.com/?p=1854#comment-185935 Mark: I'm not sure I entirely understand your comment. My plan is not to set an initial allocation and never make any changes. It is to rebalance to the original allocation percentages periodically, typically by adding new money and occasionally by rebalancing. What I considered was increasing the equity allocation from my current 80% to 85%, after a severe drop in the equities. I did not make any change. Mark: I’m not sure I entirely understand your comment. My plan is not to set an initial allocation and never make any changes. It is to rebalance to the original allocation percentages periodically, typically by adding new money and occasionally by rebalancing. What I considered was increasing the equity allocation from my current 80% to 85%, after a severe drop in the equities. I did not make any change.

]]> By: Mark Wolfinger http://www.canadiancapitalist.com/increasing-equity-allocation-in-severe-bear-markets/#comment-185934 Mark Wolfinger Fri, 20 Mar 2009 19:04:15 +0000 http://www.canadiancapitalist.com/?p=1854#comment-185934 If you DO NOT change the balance of your allocated assets, they you are not really allocating assets. What you did was choose initial investments and plan to hold them forever. Find the courage. Mark If you DO NOT change the balance of your allocated assets, they you are not really allocating assets.

What you did was choose initial investments and plan to hold them forever.

Find the courage.

Mark

]]> By: Friday Links | The Canadian Finance Blog http://www.canadiancapitalist.com/increasing-equity-allocation-in-severe-bear-markets/#comment-184921 Friday Links | The Canadian Finance Blog Fri, 13 Mar 2009 10:07:44 +0000 http://www.canadiancapitalist.com/?p=1854#comment-184921 [...] Canadian Capitalist wrote about increasing equity allocation in severe bear markets. [...] [...] Canadian Capitalist wrote about increasing equity allocation in severe bear markets. [...]

]]> By: Weekly review of personal finance blogs for week of March 9th | Financial Highway http://www.canadiancapitalist.com/increasing-equity-allocation-in-severe-bear-markets/#comment-184899 Weekly review of personal finance blogs for week of March 9th | Financial Highway Fri, 13 Mar 2009 05:21:24 +0000 http://www.canadiancapitalist.com/?p=1854#comment-184899 [...] Canadian Capitalist talks about Increasing equity allocation in severe bear markets [...] [...] Canadian Capitalist talks about Increasing equity allocation in severe bear markets [...]

]]> By: second opinion mike http://www.canadiancapitalist.com/increasing-equity-allocation-in-severe-bear-markets/#comment-184868 second opinion mike Thu, 12 Mar 2009 23:45:34 +0000 http://www.canadiancapitalist.com/?p=1854#comment-184868 Typically when the strategic asset allocation is set, the targets are set as a range. If you targeted 50% equities, we would expect to see a tactical range such as 40-60%. Allowing the allocation to move within the range, up to 60% would not be considered a violation of the strategic allocation. It is a conscious decision to take on additional risk, but is still within the scope of the initial strategy. The range can also be used as a rebalancing guideline if you wish to avoid the calandar based rebalancing strategy. If you "bail" on the strategy and violate the tactical envelope then you are consciously moving to a new strategic allocation and should revisit your Investment Policy Statement. Typically when the strategic asset allocation is set, the targets are set as a range. If you targeted 50% equities, we would expect to see a tactical range such as 40-60%. Allowing the allocation to move within the range, up to 60% would not be considered a violation of the strategic allocation. It is a conscious decision to take on additional risk, but is still within the scope of the initial strategy. The range can also be used as a rebalancing guideline if you wish to avoid the calandar based rebalancing strategy. If you “bail” on the strategy and violate the tactical envelope then you are consciously moving to a new strategic allocation and should revisit your Investment Policy Statement.

]]> By: Doug http://www.canadiancapitalist.com/increasing-equity-allocation-in-severe-bear-markets/#comment-184844 Doug Thu, 12 Mar 2009 20:49:04 +0000 http://www.canadiancapitalist.com/?p=1854#comment-184844 It is interesting that Jack Bogle increased the bond proportion of his portfolio back in 2000. He felt that stocks were overvalued. Is that market timing? Of course, he is Jack Bogle. By most measures, stocks haven't been this cheap in more than 10 years. For a long term investor, the return on your investmen by putting money in stocks will most likely be greater now than any time in more than a decade. It is interesting that Jack Bogle increased the bond proportion of his portfolio back in 2000. He felt that stocks were overvalued. Is that market timing? Of course, he is Jack Bogle. By most measures, stocks haven’t been this cheap in more than 10 years. For a long term investor, the return on your investmen by putting money in stocks will most likely be greater now than any time in more than a decade.

]]> By: Silicon Prairie http://www.canadiancapitalist.com/increasing-equity-allocation-in-severe-bear-markets/#comment-184824 Silicon Prairie Thu, 12 Mar 2009 19:25:20 +0000 http://www.canadiancapitalist.com/?p=1854#comment-184824 Running out of cash could be a concern if a decline continues for too long, but that shouldn't happen unless you change your allocation blindly. I believe it was The Four Pillars that explained why expected returns in the earlier part of this decade were lower than historical returns because of the bull market of the last 20 years (prices won't keep rising forever if you buy at an unusually high price). Now that a good part of its effects have been reversed, the expected returns for equities should be higher than they were a few years ago. Based on this you can go back to the reasons you chose your original allocation (it is based on relative risk and return, right?). If the expected return for equities is higher than before you might increase the allocation, but not to the point where you have nothing else. With this new allocation you can rebalance to get the performance and risk that you want in the future. Dumping money into the market just because it went down is ordinary market timing (unlike chasing performance it has a chance to work). Coming to new conclusions because the information they're based on has changed can be a wise move if you don't let your emotions affect the results. If you can't avoid that you might want to stick to age-based allocations. Running out of cash could be a concern if a decline continues for too long, but that shouldn’t happen unless you change your allocation blindly.

I believe it was The Four Pillars that explained why expected returns in the earlier part of this decade were lower than historical returns because of the bull market of the last 20 years (prices won’t keep rising forever if you buy at an unusually high price). Now that a good part of its effects have been reversed, the expected returns for equities should be higher than they were a few years ago.

Based on this you can go back to the reasons you chose your original allocation (it is based on relative risk and return, right?). If the expected return for equities is higher than before you might increase the allocation, but not to the point where you have nothing else. With this new allocation you can rebalance to get the performance and risk that you want in the future.

Dumping money into the market just because it went down is ordinary market timing (unlike chasing performance it has a chance to work). Coming to new conclusions because the information they’re based on has changed can be a wise move if you don’t let your emotions affect the results. If you can’t avoid that you might want to stick to age-based allocations.

]]> By: Ray http://www.canadiancapitalist.com/increasing-equity-allocation-in-severe-bear-markets/#comment-184806 Ray Thu, 12 Mar 2009 17:06:30 +0000 http://www.canadiancapitalist.com/?p=1854#comment-184806 Phil S: I understand what you mean, but cheap compared to historic prices, banks are at single digit multiples you havent seen that in years. Also cheap compared to their "normal" earnings I know this is a little far stretched but if you holding it for long terms a reasonable assumptions is that the company will be able to return to their "normal" earnings at which point the current p/e would be even lower. I agree "E" has fallen but so has "P", and for many good companies their price/book value is very low, you can pick up some companies at their book value. Phil S: I understand what you mean, but cheap compared to historic prices, banks are at single digit multiples you havent seen that in years. Also cheap compared to their “normal” earnings I know this is a little far stretched but if you holding it for long terms a reasonable assumptions is that the company will be able to return to their “normal” earnings at which point the current p/e would be even lower.

I agree “E” has fallen but so has “P”, and for many good companies their price/book value is very low, you can pick up some companies at their book value.

]]> By: Phil S http://www.canadiancapitalist.com/increasing-equity-allocation-in-severe-bear-markets/#comment-184803 Phil S Thu, 12 Mar 2009 16:58:06 +0000 http://www.canadiancapitalist.com/?p=1854#comment-184803 Why does every keep saying that equities are now "cheap"? Cheap compared to what? Trailing 52-week P/E ratios? Well, I'm sorry to tell you, the "E" has fallen off a cliff. Cheap compared to the 52-week high? Yes, but the stock market gods don't remember the price where you got in and they won't guarantee that it will go back there when the crisis is over. Cheap compared to book value? Well, book value has probably fallen since the last report as real estate, commercial paper and other assets have plummeted in value. Perhaps the reason why stocks are "cheap" is because this what they're SUPPOSED to be trading at based upon forward earnings and asset values? Why does every keep saying that equities are now “cheap”? Cheap compared to what? Trailing 52-week P/E ratios? Well, I’m sorry to tell you, the “E” has fallen off a cliff. Cheap compared to the 52-week high? Yes, but the stock market gods don’t remember the price where you got in and they won’t guarantee that it will go back there when the crisis is over. Cheap compared to book value? Well, book value has probably fallen since the last report as real estate, commercial paper and other assets have plummeted in value.

Perhaps the reason why stocks are “cheap” is because this what they’re SUPPOSED to be trading at based upon forward earnings and asset values?

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