Sunday, October 20, 2013 3:22:09 PM
Hi Tom. Fantastic effort.
Firstly, sorry to those that aren't familiar with (now somewhat ancient) AIM-users history. Just ignore this posting.
On a separate but related note to the vWave, IIRC, V/L PE is the median of forward earnings looking. Since yields have been suppressed by QE that's somewhat distorted RV (PE+T-Bill). Initially I had opted to use inflation in lieu of T-Bill yields, but subsequently decided to drop that side of things and just look at PE alone.
Historically whilst different to IW for the manner in which I'm calculating, the differences don't seem to make that much of a difference to actual rewards (similar outcomes if you align/weight to one or the other).
Calculation of the 'RV' figure :
Initially I calculated from a 1982 start date up to start of 1987 the average of the PE together with the standard deviation. Each week that is updated/extended (new/different average and stdev as new weeks are added into the historical set, such that the more recent values reflect the average PE from 1982 and stdev in those values).
Given the average PE and standard deviation of those values, calculate a stochastic i.e. ( current - low ) / ( high - low ), where high is 3 standard deviations above the average, and low is 1 standard deviation below the average.
I'm a Ben Graham follower in believing no more than 25%, no less than 75% stock (cash) is appropriate, so I account for 25% minimum and add on the above stochastic value multiplied by 50 (i.e. up to 50% more on top of that 25% core amount). 75% cash is however perhaps just a bit too much and I've further refined to limit the maximum to 66% i.e. if the figures is >66 then set to 66.
Unfortunately the data in the above chart cuts of at 2000 as I lost my V/L PE data after a PC failure some time back (and when the backups I had didn't restore). So I've a big hole between then and more recent years.
Best regards.
Clive.
Firstly, sorry to those that aren't familiar with (now somewhat ancient) AIM-users history. Just ignore this posting.
On a separate but related note to the vWave, IIRC, V/L PE is the median of forward earnings looking. Since yields have been suppressed by QE that's somewhat distorted RV (PE+T-Bill). Initially I had opted to use inflation in lieu of T-Bill yields, but subsequently decided to drop that side of things and just look at PE alone.
Historically whilst different to IW for the manner in which I'm calculating, the differences don't seem to make that much of a difference to actual rewards (similar outcomes if you align/weight to one or the other).
Calculation of the 'RV' figure :
Initially I calculated from a 1982 start date up to start of 1987 the average of the PE together with the standard deviation. Each week that is updated/extended (new/different average and stdev as new weeks are added into the historical set, such that the more recent values reflect the average PE from 1982 and stdev in those values).
Given the average PE and standard deviation of those values, calculate a stochastic i.e. ( current - low ) / ( high - low ), where high is 3 standard deviations above the average, and low is 1 standard deviation below the average.
I'm a Ben Graham follower in believing no more than 25%, no less than 75% stock (cash) is appropriate, so I account for 25% minimum and add on the above stochastic value multiplied by 50 (i.e. up to 50% more on top of that 25% core amount). 75% cash is however perhaps just a bit too much and I've further refined to limit the maximum to 66% i.e. if the figures is >66 then set to 66.
Unfortunately the data in the above chart cuts of at 2000 as I lost my V/L PE data after a PC failure some time back (and when the backups I had didn't restore). So I've a big hole between then and more recent years.
Best regards.
Clive.
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