Shiller CAPE Ratio Reaches 60% Overvalued--An Automatic Trigger to Rebalance Again

As discussed in previous posts, Professor Shiller's CAPE ratio has been, at best, a blunt market timing instrument.   If one waited until his ratio dropped to fair value before buying, one would have missed the entire bull market from 2002 to 2007.  However, as I mentioned in my last post, the CAPE ratio can be useful in determining when to rebalance.  Rather than rebalance once a year, why not use the extent to which the market becomes overvalued as the trigger?

Today, the CAPE ratio reached 60% overvalued for the first time in this bull market which started in March 2009.  For me, that is an automatic trigger to rebalance.  Accordingly, I have sold 9% of my equity position to bring it back to its core level.  The next trigger point would be if the CAPE ratio were to reach 70% overvalued.