The Next Thirty Years Addendum

I looked at my data again. We need to protect ourselves from being locked out of stocks entirely.

Ten Samples

I analyzed my ten samples again.

These are the same samples that I have already placed into my Yahoo Briefcase. They are in the Scen Surf Gen Data A file in the Retirement Trainers folder.

Data Highlights

Buy in points:
P/E10 below 15 first:
In years 1 through 5: Run 3 year 5; Run 8 year 4.
In years 6 through 10: Run 1 year 8; Run 2 year 8; Run 4 year 10; Run 5 year 7; Run 6 year 7; Run 7 year 7.
In years 11 through 15: Run 9 year 15; Run 10 year 12.

Bargain level:
P/E10 below 10 first:
Run 1 year 13.
Run 2 year 9.
Run 3 year 5.
Run 4 year 10.
Run 5 year 18.
Run 6 year 21.
Run 7 year 10.
Run 8 year 9.
Run 9 year 17.
Run 10 never.

P/E10 fell below 10 on or before year 10 in five cases: runs 2, 3, 4, 7 and 8.
P/E10 fell below 10 later than year 15 in four cases: runs 5, 6, 9 and 10 (never).

Summary

These runs show that it is possible to be locked out of the market entirely. Although we want to exploit any drop to bargain levels, we might have to wait a very long time.

It is reasonable to have a minimal stock allocation that we maintain throughout all except to most extreme valuations, possibly 20% up to P/E10=30. Stocks start to become attractive when P/E10 falls below 20. An allocation of 30% to 40% would make sense. When P/E10 falls below 15, stocks are highly attractive, but we must still protect ourselves against a sharp price decrease. A stock allocation of 70% to 80% makes sense. Stocks are so compelling when P/E10 falls below 10 that a 100% stock allocation makes sense.

These are, of course, early findings, subject to revision.

Have fun.

John Walter Russell
November 6, 2007