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5:58 am
March 15, 2011
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somrh
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| Member | posts 336 |
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stormam said:
Corporate B/S's are in a better position today than any period since pre-WW2.
How do you qualify that statement? What are you basing it on? And what about the fact that Q-ratio is high (see article)?
The Shiller long-term P/E is a great tool. It also misses structural
economic changes. The worst recession since the great depression sounds
like one of those to me.
I guess I don't share your optimism. Or rather, my optimism is a little different. For starters, there were significant changes made by FDR administration during the GD. Right now, the main criticism is that the government is doing too little in structural changes. I don't know if I have any good suggestions on what to do but I'm skeptical that what we're currently doing will change much of anything.
My optimism stems from the (perhaps naive) belief that Americans are realizing that our debt driven consumerism is not sustainable. For the last 30 years or so, consumer debt has been on a significant rise while wages have had difficulty keeping up with inflation. As good paying manufacturing jobs get outsourced to Mexico and China, corporations have relied heavily on consumer borrowing to keep the cow moving along. That's not going to last long.
If there's any "salvation" for US corporations, it will be to get those billion + Chinese people to stop saving money (that seems to be a cultural attitiude in much of Asia… one that we could probably benefit from) and start becoming good little consumers like we've learned.
On a final note regarding the retail investors. My "optimism" is that after the TMT bubble and the real estate bubble and the subsequent collapse of the overvalued stock market, maybe people will start to realize that the nonsense finance theories are all what they've cracked up to be. I know many people who have gotten burned and decided (rightly or wrongly) to just invest in bonds and forget about stocks altogether. It really all depends on whether they can sell the old line ("stocks outperform bonds", etc).
On the pessimistic side, baby boomers are retiring. They're probably going to be pulling money out of the markets. Will the younger generation put more in than they're taking out?
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9:35 am
March 14, 2011
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stormam
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Post edited 9:42 am – March 14, 2011 by stormam
It seems like everyone everywhere is pessimistic despite the 'crazy risk on bull rally'. A few things to consider. First, there are many ways to value companies. P/E is not the only one and is certainly not perfect. It does not consider balance sheets. Corporate B/S's are in a better position today than any period since pre-WW2. The forward P/E adjusted for net cash is much lower as a result.
There are some really crazy valuations out there. NFLX, CRM, AMZN, FFIV, we all know them. They make little sense. On the other hand, there are so many good companeis trading with +8% FCF yields right now that have at least long-term GDP growth that I am frankly shocked. How can anyone argue these are expensive? You can buy bonds yielding 4% with 0 long-term capital appreciation or high quality US equities yielding +8% with at least GDP-type capital appreciation (nominal GDP, not real).
For example: INTC, HPQ, CSCO, KKR, MSCC, DOX, EXPE, MRVL, QLGC, CHKP to name a few (I follow mostly tech, but I'm finding this everywhere I look).
As for technicals, consider this. The last two years retail investors have poured something like $600 billion into bond funds. Institutions (pension, endowments, etc…) have also made this shift and have a record low equity allocation (per a WSJ article). Money has just begun flowing back into equities. A move by institutions to re-allocate 5-10% of their portfolios to equities would cause massive inflows. Buybacks continue at a strong pace, M&A is also strong further reducing the outstanding supply of US equities. I see record-low equity holdings by most people and struggle to see further significant downside. By significant I mean the 40% over-valued someone referenced above.
Remember, in crisis America has demostrated hands down the greatest ability to innovate and change. US Corporations have structurally changed their cost structures (including firing people). Note that corporate profitability is about where it was pre-Lehman YET over 6 million Americans have been added to the unemployment list. We're making just as much money sans 6 million people!! And the earnings power is higher quality with less contribution from financials, home builders and commercial construction. The unemployment rate is a real problem and companies won't invest until they start seeing the light. The exmployment situation looks more like a coiled spring than detritus.
Could we see pull-backs? Sure. S&P sub 1k? I doubt it. I suspect it is more likely we hit 1,500 than 1,000 (short of exogenous factors… hello Japan, Libya, Egypt, Saudi Arabia, Bahrain, Ireland, etc…). The administration is also a massive drag as no one knows what forward returns will be when you don't know the upcoming regulation, tax rates, etc… But this also seems to be moderating.
The Shiller long-term P/E is a great tool. It also misses structural economic changes. The worst recession since the great depression sounds like one of those to me.
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6:57 am
March 14, 2011
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somrh
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| Member | posts 336 |
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If you want to see Shiller's data with pretty graphs, check out this site:
PE Ratios
If you click the links at the top, you'll find more interesting charts.
….
On related note, I found a blog by John Hussman who does research in econometrics. He has a model for predicting 10-year returns for the S&P 500. I haven't found any information on how he calculates it but it has a pretty graph and his predictions are decent. See link for the blog:
S&P 500 IS 40% OVERVALUED
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4:31 pm
February 23, 2011
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Jae Jun
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you can check it even easier at Robert Shiller's website. Just search for his name.
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5:02 pm
February 22, 2011
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Carlh868
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The bull rally won't last long, I just don't trust the people in charge of our economy. That being said, if anyone invested in equity market since 2009 you are probably making $  . I just feel the overall PE ratio of the major indexes are still high. (I need to check the numbers with ValueLine at my local library again soon).
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7:02 pm
February 21, 2011
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Jae Jun
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at the moment, i'm finding 98% of the companies I look at either fairly valued or overvalued.
So I am just going through a lot of companies, building a list of companies I like and waiting.
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5:15 pm
February 20, 2011
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vtclimatetech
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Jae Jun said:
Great to have you on here. Welcome.
4 years is about how long I've been investing so we've got something in common :)
If you bought SPY, you've done a real good job. Better than me anyways.. lol
I'm not sure how this rally is going to end. All this rush towards risky investing. Soon there will come a point where I wont be able to find anything to buy and will have to wait it out.
What companies are you looking into or is there a sector that you prefer.
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5:12 pm
February 20, 2011
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vtclimatetech
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Thank You to all who responded to me. I am looking forward to hearing from all of you again. I will be online on Thursday nights at 6 eastern standard time. Hopefully, some of you will be able to coordinate a time where we can all be on at the same time.
I too am waiting out the market. Currently, I can not find any deals. Anyone looking at Green Mountain Coffee Roasters, BP, Progressive Insurance? I would some input on these companies.
Happy Investing
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2:11 pm
February 16, 2011
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Jason
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| Member | posts 24 |
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Let's keep in mind that the S&P 500 is trading ~15x 2010 earnings and ~13x projected 2011 earnings. Now, though I don't put too much weight on the value of projections I think you can see that barring another economic disaster we are trading somewhere between undervalued and fairly valued. So given such a valuation I don't think it's worth the time trying to incorporate market movements into one's decisions.
My prediction going forward would be stocks begin to lose correlation to the direction of the stock market (woohoo for stock pickers like us!) and we see more company-specific moves based on the fundamentals of companies (i.e. earnings, contract announcements, etc). However, there will always be that black swan event that hits just when no one expects it but I believe making predictions about such events is pointless (especially for individual investors), and that's why I don't care about the market movements at times like these (when the markets are in between pessimism and optimism).
As value investors I think the most we can do is pick solid companies, get a feeling for market sentiment and adjust our cash-equity balance accordingly. The most difficult part is gauging the mood of market participants so I think this discussion is something we could have here: I track the Shiller 10-year P/E, TTM PE, and the abundance of net-net asset plays as measures of mood. I would like to read what other people look to for measures of market sentiment.
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8:23 am
February 15, 2011
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Roger
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| Member | posts 13 |
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Hi and greetings from The Netherlands!
I've been investing since the early 2000s and really like Jae's product – that's the reason I purchased it last week to free some time instead of doing all the work myself :-)
Anyway – I'm convinced that the market is in a short-term overbought situation. Technically there's a clear divergence with the price and stochastics, but if you explore the fundamentals, there are a lot of high PEs and prices above intrinsic value. For me it's currently trying to gather a lot of cash and be patient for the best time to buy again.
For the ETFs… The SPY (Standard & Poors), QQQQ (Nasdaq) and DIA (Dow Jones) are a GREAT way to trackt the market – they have good liquidity too. Take a look at other ETFs like GLD (gold), SLV (silver), XLF (Financial Spider), XLE (Energy), OIH (Oil holders), XLB (Materials)…..etc. But please beware that these ETFs prices actually are set by its demand so it's definitly not a one-on-one tracking…
Kind regards,
Roger
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5:56 am
February 15, 2011
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Jae Jun
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Great to have you on here. Welcome.
4 years is about how long I've been investing so we've got something in common :)
If you bought SPY, you've done a real good job. Better than me anyways.. lol
I'm not sure how this rally is going to end. All this rush towards risky investing. Soon there will come a point where I wont be able to find anything to buy and will have to wait it out.
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2:33 pm
February 13, 2011
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vtclimatetech
| | Vermont | |
| Member | posts 3 |
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Hi, My name is Jesse Mode and I have been investing for over four years. Recently, I discovered this OSV and love it. I have read alot about Ben Gramham and found it exciting that his principles of investing have endured. I attend Champlain College in Burlington, Vt and Currently seeking a BA in Forensic Accounting. Enough with my back ground, let's get down to business.
I would love to contribute to this forum, so what's everyone thing stocks, Bonds, ETF's, ETC… Has anyone tried SPY….
I bought in early this year and have made a sizable amount. 
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