The Lemon Fool

simoan wrote:Sorry but I don't invest in markets, I invest in companies.

Great companies don't always make great investments. It depends on the price you pay.

BT63 wrote:

simoan wrote:Sorry but I don't invest in markets, I invest in companies.

Great companies don't always make great investments. It depends on the price you pay.

So you've not read the Howard Marks newsletter? Please read it and stop coming out with cliches...

simoan wrote:....Sorry but I don't invest in markets, I invest in companies....

Further to this, you mock me regarding crystal balls, but do you have a crystal ball that tells you which companies will have the best profits growth in the future? Even better, a crystal ball that shows you which companies' shares will give the highest return?
Or are you just extrapolating the past?

You're making a guesstimate today on where the profits of particular companies will be in the future. In addition to possible margins of error in your guesstimates, there's the risk that you're overpaying if you buy at today's price.

BT63 wrote:

simoan wrote:....Sorry but I don't invest in markets, I invest in companies....

Further to this, you mock me regarding crystal balls, but do you have a crystal ball that tells you which companies will have the best profits growth in the future? Even better, a crystal ball that shows you which companies' shares will give the highest return?
Or are you just extrapolating the past?

You're making a guesstimate today on where the profits of particular companies will be in the future. In addition to possible margins of error in your guesstimates, there's the risk that you're overpaying if you buy at today's price.

Of course. What don't you understand when I admit I have no knowledge of the future? That is the environment within which we ALL have to invest. However, it's easier to estimate what the future for an individual company may look like as opposed to a market with 500 different companies. Sorry if I'm stating the bleeding obvious here...

bluedonkey wrote:I think I don't know the future and simultaneously think that BT63 is right.

I know I don't know the future and simultaneously think BT63 (and you) is wrong.

dealtn wrote:

bluedonkey wrote:I think I don't know the future and simultaneously think that BT63 is right.

I know I don't know the future and simultaneously think BT63 (and you) is wrong.

So what's the right answer?

A periodically rebalanced mixture of cash, bonds, global shares, property and gold?

If so, it would have been annually rebalancing/reducing its exposure to increasingly expensive US shares over the last several years, which would have a similar long-term effect to selling what is overvalued and accumulating what is undervalued.

BT63 wrote:

dealtn wrote:

bluedonkey wrote:I think I don't know the future and simultaneously think that BT63 is right.

I know I don't know the future and simultaneously think BT63 (and you) is wrong.

So what's the right answer?

What's the question?

dealtn wrote:What's the question?

The original question was:
Are US equities overvalued?

Some people say 'no' because things are different this time.
I think the answer is a strong 'yes' because of how far the US is from its own valuation mean, and how far relative to the valuations of other major indices.
A 10% valuation premium for the US over the rest of the world is normal. Now it's +35% which is +3s.d.

Then it drifted onto something like:
What should an investor do?
Some people say 'nothing'.
I say: 'rebalance'.

BT63 wrote:

dealtn wrote:What's the question?

The original question was:
Are US equities overvalued?

Some people say 'no' because things are different this time.
I think the answer is a strong 'yes' because of how far the US is from its own valuation mean, and how far relative to the valuations of other major indices.
A 10% valuation premium for the US over the rest of the world is normal. Now it's +35% which is +3s.d.

Then it drifted onto something like:
What should an investor do?
Some people say 'nothing'.
I say: 'rebalance'.

OK. My response claiming you were wrong, was to your statement

So I'm going to suggest that US equities look well placed to soon begin one of their worst periods of underperformance in living memory.

Specifically I think you are wrong to know, or suggest, that.

If it helps, my answer to the original question

Are US equities overvalued?

is "I don't know", and further without knowing the timeframe being referred to I would suggest that is the honest answer that anyone should give.

So if the question has subsequently become

What should an investor do?

I would suggest the answer from an investment perspective is down to the individual but I would at least as part of that assess what anyone's risk appetite and aims from investing are - that is some spectrum.

I would suggest from a knowledge perspective though a good start would be to recognise you don't know most things and act accordingly. A good way to accept such lack of knowledge might be to read short and simple essays on such from experienced people. Howard Marks is as good a place as any to start, and a link has been provided. It genuinely could be the best investment, financial or otherwise, you take, and only 30 minutes or so. Have you "clicked" it yet?

BT63 wrote:

simoan wrote:....Sorry but I don't invest in markets, I invest in companies....

Further to this, you mock me regarding crystal balls, but do you have a crystal ball that tells you which companies will have the best profits growth in the future? Even better, a crystal ball that shows you which companies' shares will give the highest return?
Or are you just extrapolating the past?

You're making a guesstimate today on where the profits of particular companies will be in the future. In addition to possible margins of error in your guesstimates, there's the risk that you're overpaying if you buy at today's price.

With companies and ITs you are not imho trying to get the best, anyone aiming for the best is likely going to be very disappointed, you are merely aiming for above average returns with limited downside if you can get it ,and you weigh up the risks/rewards when selecting .

Personally I am prepared to reduce upside potential by using ITs to spread the risks to a degree, others, maybe at a different point in their life, might take a different view (I have become more cautious with age as fewer years to remedy/ catch back any mistakes I now make)

But isn't a lot of the froth in tech? Rotate from those perhaps?

Charlottesquare wrote: Personally I am prepared to reduce upside potential by using ITs to spread the risks to a degree, others, maybe at a different point in their life, might take a different view (I have become more cautious with age as fewer years to remedy/ catch back any mistakes I now make)

I can very much identify with that. Also the years have told me that my stock-picking skills are erratic at best.

V8

7 weeks on from the original post, S&P 500 currently down 13.5%!

approximately 6 months on from the original post, S&P 500 is down 21.8% year to date!

hindsight is a wonderful thing!

We are now down to the same CAPE level as we were at the market peak in 1929 when Black Tuesday ended the party. CAPE didn't get back to that level until the late 90s TMT/Dot Com rally. I guess we are not out of the woods yet

AWOL wrote:We are now down to the same CAPE level as we were at the market peak in 1929 when Black Tuesday ended the party. CAPE didn't get back to that level until the late 90s TMT/Dot Com rally. I guess we are not out of the woods yet

Are the shoeshine boys giving share advice ?

https://www.4investors.eu/post/the-shoeshine-boy-indicator

The story took place in 1929 : Joseph Patrick "Joe" Kennedy, Sr. JFK's father, claimed that he knew it was time to get out of the stock market when he got investment tips from a shoeshine boy. On that moment Joe Kennedy had the intuition that we were at the end of the bull market and subsequently he decided to short the market and became .. multi-millionaire !

Overvalued? We know the price; to know if that’s good value the past returns or characteristics of the stocks would be irrelevant now. What’s relevant to ‘good value’ is what returns you get in the future. Not knowing that means we can’t know if they’re overvalued, surely?
The question seems unanswerable except with opinion, and I’m loath to act on someone else’s. But as a discussion topic, bountiful.

yes. still overvalued and overowned, and therefore unlikely to deliver the sort of returns that investors are hoping for.

The AAII asset allocation survey shows that stock ownership is still running at 67%: this is still near the top of the range. Meaningful bottoms have only been put in place historically at much lower levels - I would ideally want to see 50% or less.

https://www.aaii.com/assetallocationsurvey

JohnW wrote:Overvalued? We know the price; to know if that’s good value the past returns or characteristics of the stocks would be irrelevant now. What’s relevant to ‘good value’ is what returns you get in the future. Not knowing that means we can’t know if they’re overvalued, surely?
The question seems unanswerable except with opinion, and I’m loath to act on someone else’s. But as a discussion topic, bountiful.

Loose monetary policy has led to extreme absolute valuations but okay equity valuations relative to bonds. However the end of QE and more importantly the rate rises required to tame inflation. Here are the relevant score metrics in a scorecard:

https://www.currentmarketvaluation.com/

Ultimately although individual stocks don't mean revert, markets do. The challenge is when will they revert!

Accidentally deleted the end of this sentence ..."However the end of QE and more importantly the rate rises required to tame inflation will subsequently make the relative valuations Les attractive".

Interest rates also poses a threat to capital light stocks in particular and if it gets to 5% then most equities will struggle.