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    I wonder how much of this is inflation or general growth of the economy. That’s why the Schiller PE Ratio is a ratio, right? Well, I suppose the people trying to time the market probably are just going off the raw numbers anyways.

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      Well, supposedly we know exactly how much of it is inflation, earning forecasts are reasonably accurate, and the rest is speculation/passive investing flows?

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      “almost all of the time” doesn’t mean much. is that 51% of the time, or 99% of the time?

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        According to these guys it’s 54% within 5% of ATH and 67% within 10% of ATH.

        You’re right, “almost all of the time” was a bit too enthusiastic 🙂

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        Than you! I’ve actually been wanting this exact data set for a while. How did you prepare it?

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          It is not mine, but it looks like a closing price .csv from Yahoo! Finance (or Alpha Vantage, just found out about it - it’s pretty neat!) plotted on a log scale + if closing price within 5% of ATH { color: red }. You can play with yourself in Excel or matplotlib.

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          Yes and no. Wouldn’t a distorted market create more alpha for the active investors? Assuming 99% of the investors move to passive, this would create high inefficiencies in the market, and this would attract investors (e.g. hedge funds) who would be able to exploit them. A high alpha would then convince some investors to switch from passive to active again.

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            Agree. My test to re-evaluate my passive investment strategy is when active managers of mutual funds outperform the indexes 50% the time. According to the SPIVA scorecard, active fund managers outperform their respective indexes only 20% of the time. If the pros can’t find easy alpha, I don’t believe that I have a realistic chance.

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              In a hypothetical scenario where 99% of the investors become passive, the remaining 1% wouldn’t have enough oomph to move the market and correct the inefficiencies - price discovery would essentially be dead at that point. Or am I missing something?

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                I doubt the price can bubble up much past the theoretical threshold at which indexing becomes less efficient than active strategies, so that remains, indeed, a hypothetical scenario.