AN INVESTING STRATEGY (work in progress ...)

14 October 2021

Looking at the Cyclically Adjusted Price Earnings ratio (CAPE):

Ie average on the FTSE 100 and 250

Average over last 10 years.

 

It is middle of the road territory on both:

FTSE100 at 7,000 is CAPE in 14 to 20 range

FTSE250 at 23,000 is CAPE in 19 to 28 range

So fair value on both - meaning you can expect the average return of 7%, divis reinvested.

 

Now compare with the S&P500:

It's up 1.71% today at 4,438.26.

The CAPE is over 32.

32 is off my scale

32 is way way average.

Best bet is to identify lower P/E, higher divi stocks  If you can find any with a good track record. Put them on a watch list. Decide an allocation and diversification policy. Buy the undervalued and sell the overvalued, according to your position-sizing.

Take account of yield, of growth, and of valuation.

And sell out of these stocks or a covering ETF, if inflation is installing itself on a more permanent basis at 5% and above.

INDICATORS

1. FUNDAMENTAL

2. TECHNICAL ANALYSIS

3. SENTIMENT

1. FUNDAMENTAL

1a. YIELD

1b. GROWTH

ROCE  Finding a business that has the potential to grow substantially is not so easy, but it is possible if we look at a few key financial metrics. 

Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed.

1c. VALUATION