The FTSE 100 cyclically adjusted PE ratio (FTSE 100 CAPE or PE10) – May 2011

Now that I’m back in the blogging world I’ve been catching up on all the great posts that I’ve missed over the past few months from My Blog List (full list in the right hand sidebar of the page).  Great UK based blogs such as Monevator, A Grain of Salt, Simple Living in Suffolk and UK Value Investor.  This post from ermine at Simple Living has however made me think about my cyclically adjusted PE (PE10 or CAPE) strategy and whether it is the right thing to be doing.  I am a big believer in the Keep It Simple Stupid (KISS) principle and if somebody like ermine can’t understand what I’m up to then have I made it all too complicated?

My Retirement Investing Today Strategy Works – And I’m Still Yet to Retire

I must first apologise to all the regular readers of Retirement Investing Today for the big gap in posts.  My life has been somewhat turned upside down over the past few months meaning I’ve had to focus my attentions elsewhere for a period.  What the past few months has taught me however is that my Retirement Investing Today strategy has worked even with me being still some 5 years or so from retirement.  How so I hear you ask.

The ASX 200 cyclically adjusted PE ratio (ASX 200 CAPE or ASX200 PE10) – December 2010 Update

The Australian ASX200 is currently 4763. Let’s look at the usual monthly indicators that I monitor every month for this index. My first chart shows the cyclically adjusted PE ratio (ASX200 PE10 or CAPE) at 17.8 which is up from 17.2 last month. The P/E ratio on the other hand heads in the opposite direction, heading downwards from 18.6 to 16.4.

This year my strategy is not adding any value - My Retirement Investing Today Current Low Charge Portfolio – December 2010

This blog is not trying to sell you anything which means that I can freely share with you both the positives and the negatives of my strategy. Today though is neither really a positive or negative experience with my year to date Personal Rate of Return sitting at 8.6%, compared with my Benchmark Portfolio which has returned 8.5%. Of course given that I spend significant time maintaining my strategic and tactical asset allocations many would argue that if I calculated the cost of my time then I would probably be behind compared to the benchmark portfolio which would probably cost a maximum 1 hour of time per annum with a rebalance at the start of every year. The only defence I have is that my portfolio has had to pay some fees (Equity ETF, Pension etc costs), even if I do try an minimise them, and also has paid some tax (cash is taxed at 20%).

The FTSE 100 cyclically adjusted PE ratio (CAPE or PE10) – December 2010

Today’s first chart shows that with the nominal FTSE 100 price moving from 5694.6 (01 November) to 5642.5 (01 December) over the month, a decrease of 0.9%, the cyclically adjusted PE ratio (PE10 or CAPE) has also fallen from 14.1 to 13.9. These calculations are based on using the Consumer Price Index (CPI) to correct for inflationary effects. If I was to use the Retail Prices Index the PE10 would be 13.6. This is still well below the FTSE 100 PE10 20 Percentile for this dataset of 16.8 while the 80 Percentile is 23.7. The long run average is 19.9 for the dataset shown in the chart. The correlation between the PE10 and the Real (inflation adjusted by the CPI) FTSE Price remains a strong 0.69. In comparison the standard PE ratio is sitting at 11.6, down from 14.5 last month.