Cheap assets in uptrends have the best prospects, and expensive assets in downtrends are the most risky. Value investors can make money, and trend followers can make money. Both avoid excessive risk.
Momentum is either positive or negative, based on the last monthly close relative to the average of the last 12 monthly closes.
Value has three conditions: undervalued, fairly valued, and overvalued.
For equity markets, these thresholds are set by the Shiller PE (CAPE):
- Under 12: Undervalued
- 12-22: Fairly valued
- Over 22: Overvalued
For REITs, the value thresholds are set by yield, at 5% and 7.5%.
Commodity valuation thresholds are set by inflation-adjusted price history.
All signals are 100% quantitative. I make no personal judgments about how to classify assets each month.
Data is as of last monthly close. I make no promise that it is without errors.
See newsletter for full rules and models for implementation.