The yield curve can also give clues. When investors are flocking to safe assets and pushing down short term rates (like now, give or take quantitative easing! ) it suggests bonds are still much more in demand than stocks.

The $3.5 trillion sitting in US money market accounts also suggests demand for stocks is low. (You can compare it as a percentage of the value of the S&P over time for more clues to demand etc).

Cheers!
M.

The overall article is fine stuff, Mike. This particular statement does not hold water (in my view!).

You don’t need to anticipate a demand shift to profit from it. The demand shift evidences itself in the P/E10 level (valuations). An increase in the P/E10 level causes lower returns on a going forward basis. That’s the information you need to act on. All you need to know to become able to invest more effectively than Passive Investors is that valuations affect long-term returns. You don’t need to guess about anything. You just look up the P/E10 level and make whatever allocation changes are needed in response.

As with other attempts to beat the market based on any particular piece of data: If it’s obvious, it’s worthless.

This claim assumes investor rationality, Mike. If investors were engaged solely in the rational pursuit of their self-interest, this would indeed follow. But this is obviously not the case. If investors were engaged solely in the rational pursuit of their self-interest, valuations would never get to the insane levels that applied from 1996 through 2008. The reality is that they did get to those levels and they remained at those levels for 13 years.

The Passive Investing model assumes investor rationality. This is its great flaw. All of the principles of Passive Investing would follow if the premise were correct. But the premise is not correct. It is the P/E10 level (the valuation level) that tells us at any given time how irrational we have become in our investing decisions.

Thanks for addressing an important question and for offering your sincere take on it for the edification of us all. That’s how a Learning Together process begins.

Rob

We may very well be seeing the beginning stages of a seismic shift in demand of investments from US to China & India as their middle class gets larger and more people look for invesments there.