Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Grantham Speaks to Current Fair Value
Old 06-15-2010, 09:10 AM   #1
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
haha's Avatar
 
Join Date: Apr 2003
Location: Hooverville
Posts: 22,384
Grantham Speaks to Current Fair Value

Grantham: Stocks Still Above Fair Value « The Guru Investor

I feel like we are somehwat caught between a rock and a hard place. There is a binary inflation/deflation problem which makes it nerve wracking to just refuse to play with equities. At the same time, few things seem to be in bargain territory, unless you define bargain as any amount less than it once was.

Ha
__________________

__________________
"As a general rule, the more dangerous or inappropriate a conversation, the more interesting it is."-Scott Adams
haha is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 06-15-2010, 09:26 AM   #2
Thinks s/he gets paid by the post
MasterBlaster's Avatar
 
Join Date: Jun 2005
Posts: 4,359
The article doesn't say how "fair value" is determined. Is it a PE indicator or a PE10 indicator ?
__________________

__________________
MasterBlaster is offline   Reply With Quote
Old 06-15-2010, 09:34 AM   #3
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
haha's Avatar
 
Join Date: Apr 2003
Location: Hooverville
Posts: 22,384
Quote:
Originally Posted by MasterBlaster View Post
The article doesn't say how "fair value" is determined. Is it a PE indicator or a PE10 indicator ?
I am not sure that he explicitly explains his methodology; his forecasts are part of what he sells. He does have what the Bogle/Bernstein philosophy would deem impossible- a very good long term forecasting record.

Here is a recent letter


https://www.gmo.com/America/CMSAttac...c0hcAzg4TiY%3d
__________________
"As a general rule, the more dangerous or inappropriate a conversation, the more interesting it is."-Scott Adams
haha is offline   Reply With Quote
Old 06-15-2010, 09:37 AM   #4
Thinks s/he gets paid by the post
IndependentlyPoor's Avatar
 
Join Date: Jul 2009
Location: Austin
Posts: 1,142
The link requires a password, don't know if it is free registration or not, but you can get to the April letterr from the home page.

Thanks for the heads up.
__________________
Start by admitting
from cradle to tomb
it isn't that long a stay.
IndependentlyPoor is offline   Reply With Quote
Old 06-15-2010, 09:56 AM   #5
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
haha's Avatar
 
Join Date: Apr 2003
Location: Hooverville
Posts: 22,384
Quote:
Originally Posted by IndependentlyPoor View Post
The link requires a password, don't know if it is free registration or not, but you can get to the April letterr from the home page.

Thanks for the heads up.
I didn't realize. I registerd some time ago; at that time at least it was free.

Ha
__________________
"As a general rule, the more dangerous or inappropriate a conversation, the more interesting it is."-Scott Adams
haha is offline   Reply With Quote
Old 06-15-2010, 10:50 AM   #6
Recycles dryer sheets
Pete's Avatar
 
Join Date: May 2008
Posts: 350
I think it's fair to say that since the 80's we've been in a stock mania. It would be natural that the market is overvalued in total. I still think there is value in some companies that will grow with Asian growth.
__________________
Pete is offline   Reply With Quote
Old 06-15-2010, 11:37 AM   #7
Full time employment: Posting here.
ESRwannabe's Avatar
 
Join Date: Mar 2010
Posts: 630
I haven't read the article yet, but I believe that "high quality" stocks are at reasonable prices. In a relative sense, compared to most of the past decade, I would say they are pretty cheap.

I bought more shares of JNJ last week and PG just yesterday. I am basically looking at the top 20 stocks in the VIG etf and buying more shares as I get the money. My goal of $10k from divs, from my taxable brokerage account, by the time I am 40 (six years) looks to be assured. Based on my current portfolio and reasonable div growth estimates, I'll have around $5k in divs. This is from div growth only. This is assuming I invest no more money and do not even re-invest the dividends. Neither will be true of course. My immediate yearly goal is to increase divs by $1k per year.
__________________
ESRwannabe is offline   Reply With Quote
Old 06-15-2010, 05:57 PM   #8
Thinks s/he gets paid by the post
wildcat's Avatar
 
Join Date: Feb 2005
Location: Lou-evil
Posts: 2,025
I have tendency to use short-term market valuation references when observing current market conditions. As in, the market looks like a pretty good deal but only when compared to the most recent market highs & data from a few months ago.

I like to look @ Value Line's current 3-5 forecast for returns along with where they list the forecasted market low (hence highest return) and market high (hence lowest return). Always interesting to be reminded that despite the little drop we have witnessed recently we are still quite close to the market high.

Grantham's is always a good read. With so many things at play, why not think back to where we came from or at least 1/2 way there?

Hopefully those tobacco companies keep plugging away
__________________
"These walls are kind of funny. First you hate 'em, then you get used to 'em. Enough time passes, gets so you depend on them"
wildcat is offline   Reply With Quote
Old 06-15-2010, 06:33 PM   #9
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
haha's Avatar
 
Join Date: Apr 2003
Location: Hooverville
Posts: 22,384
Quote:
Originally Posted by wildcat View Post
think back to where we came from or at least 1/2 way there?

Hopefully those tobacco companies keep plugging away
Light up a Lucky! It's lightup time!

Light up a Lucky! - 1950s commercial on Flickr - Photo Sharing!
__________________
"As a general rule, the more dangerous or inappropriate a conversation, the more interesting it is."-Scott Adams
haha is offline   Reply With Quote
Old 06-16-2010, 12:42 PM   #10
Recycles dryer sheets
Pete's Avatar
 
Join Date: May 2008
Posts: 350
Quote:
Originally Posted by ESRwannabe View Post
I am basically looking at the top 20 stocks in the VIG etf and buying more shares as I get the money.
I too love dividends. The VIG has a yield of 2.14, the top 20 stocks produce something between 2.5 and 3 percent. This is something I can get in a 5 year CD with no risk. Therefore I must get growth in these stocks too.

I initially believed we were in an inflationary environment with all the printing money going on, and failed to see the effects of the collapse in credit. Dividends and their stocks have been a great hedge against inflation but have done poorly in the past in deflationary environments.

I am betting on deflation for the moment and will take my "risk free" returns in laddered CD's. If inflation returns I hope to reap the rewards of higher interest rates and will look at dividend yields again at that time.
__________________
Pete is offline   Reply With Quote
Old 06-16-2010, 02:30 PM   #11
Full time employment: Posting here.
ESRwannabe's Avatar
 
Join Date: Mar 2010
Posts: 630
Quote:
Originally Posted by Pete View Post
I too love dividends. The VIG has a yield of 2.14, the top 20 stocks produce something between 2.5 and 3 percent. This is something I can get in a 5 year CD with no risk. Therefore I must get growth in these stocks too.

I initially believed we were in an inflationary environment with all the printing money going on, and failed to see the effects of the collapse in credit. Dividends and their stocks have been a great hedge against inflation but have done poorly in the past in deflationary environments.

I am betting on deflation for the moment and will take my "risk free" returns in laddered CD's. If inflation returns I hope to reap the rewards of higher interest rates and will look at dividend yields again at that time.

I use funds in my retirement accounts. Taxable is the only place I have individual stocks. I am trying to build up supplemental income from stock divs. I consider the taxable account somewhat as one big emergency fund. I've got as much cash as I can stand. So, new money goes into stocks to build up the income. Basically this is my "left over" money that I am investing, although maybe it will turn into ESR money ten years from now. I have retirement savings taken care of before any money gets to the "left over" money pot.

My total yield is 3.52% right now, but I do have some in MO and PM which are high yielders, which drives it up a little bit. Current stocks are: CVX, JNJ, PG, KO, MO, PM.

I have gotten CVX, JNJ, and PG up to where they should bring in $1k or more each within five years, based on reasonable div growth estimates and assuming no more money is invested into them, including dividends. I almost have KO there. It is projected to be around $840 a year in divs, five years from now.

I want to get KO up to $1k divs and then I will probably move onto PEP, WMT, or MCD next. I'm just going to keep getting each one to $1k and then go after another stock. Goal is to have $10k div income in five years. Yearly goal is to add $1k projected div income each year. Once I get to $10k income I will re-evaluate. I don't particularly want to have more than 10 stocks. So, at that point I will probably only buy funds from then on.
__________________
ESRwannabe is offline   Reply With Quote
Old 06-17-2010, 08:17 AM   #12
Moderator
MichaelB's Avatar
 
Join Date: Jan 2008
Location: Rocky Inlets
Posts: 24,449
Quote:
Originally Posted by haha View Post
I am not sure that he explicitly explains his methodology; his forecasts are part of what he sells. He does have what the Bogle/Bernstein philosophy would deem impossible- a very good long term forecasting record.

Here is a recent letter


https://www.gmo.com/America/CMSAttac...c0hcAzg4TiY%3d
Hi Ha

I read an interview recently where the GMO value methodology was described. IIRC they base it on Shiller PE10 historical average, their own forecast GDP and assumptions on total profit margin as a % of GDP. I'll look for the article, but it is pretty straightforward.
__________________
MichaelB is offline   Reply With Quote
Old 06-17-2010, 03:39 PM   #13
Moderator
MichaelB's Avatar
 
Join Date: Jan 2008
Location: Rocky Inlets
Posts: 24,449
The methodology GMO uses to forecast is described here http://www.advisorperspectives.com/n...will_Crash.pdf

Quote:
Grantham combines his PE forecasts with those for other variables to arrive at projected return for an asset class, as in this example for the S&P 500, for the seven years beginning 4/30/10:

(note – table here in article)

Long-term PE ratios have averaged 14 and they are currently 22.7. Grantham expects them to go to 15, and that translates to a 5.7% reduction in projected return. Similarly, profit margins have averaged 4.5%. They are currently 5.8% and Grantham generously expects them to increase to 6%, giving rise to a 0.4% increase in total return. Sales growth per share has been 1.8% and is now 1.9%; he expects it to increase to 3.6%, contributing 3.8% to total return. Including the dividend yield of 2.3% produces a total
return of 0.3%.
There’s a table I left out – I don’t know how to post tables – but in general I found the article useful in understanding GMO’s methodology.
__________________
MichaelB is offline   Reply With Quote
Old 06-17-2010, 04:46 PM   #14
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
haha's Avatar
 
Join Date: Apr 2003
Location: Hooverville
Posts: 22,384
Quote:
Originally Posted by MichaelB View Post
The methodology GMO uses to forecast is described here http://www.advisorperspectives.com/n...will_Crash.pdf

There’s a table I left out – I don’t know how to post tables – but in general I found the article useful in understanding GMO’s methodology.
Good article!
__________________
"As a general rule, the more dangerous or inappropriate a conversation, the more interesting it is."-Scott Adams
haha is offline   Reply With Quote
Old 06-17-2010, 04:48 PM   #15
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
HFWR's Avatar
 
Join Date: May 2005
Location: Lawn chair in Texas
Posts: 12,964
Quote:
Originally Posted by haha View Post
LSMFT - loose straps mean flabby titties Lucky Strike means fine tobacco!
__________________
Have Funds, Will Retire

...not doing anything of true substance...
HFWR is offline   Reply With Quote
Old 06-17-2010, 05:34 PM   #16
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
haha's Avatar
 
Join Date: Apr 2003
Location: Hooverville
Posts: 22,384
Quote:
Originally Posted by HFWR View Post
LSMFT - loose straps mean flabby titties Lucky Strike means fine tobacco!
I love old tobacco ads. Remember Johhy Roventini and "Call for Philip Mooorrreees!"

Philip Morris 'I Love Lucy' : Free Download & Streaming : Internet Archive
__________________
"As a general rule, the more dangerous or inappropriate a conversation, the more interesting it is."-Scott Adams
haha is offline   Reply With Quote
Old 06-17-2010, 05:37 PM   #17
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
HFWR's Avatar
 
Join Date: May 2005
Location: Lawn chair in Texas
Posts: 12,964
Take a puff... It's springtime!

Come to where the flavor is...

A silly millimeter longer...
__________________
Have Funds, Will Retire

...not doing anything of true substance...
HFWR is offline   Reply With Quote
Old 06-17-2010, 05:46 PM   #18
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
haha's Avatar
 
Join Date: Apr 2003
Location: Hooverville
Posts: 22,384
Quote:
Originally Posted by HFWR View Post
Take a puff... It's springtime!

Come to where the flavor is...

A silly millimeter longer...
Don't call it silly. I'll add any millimeter I can.

I seem to have performed an auto-hijacking.

Ha
__________________
"As a general rule, the more dangerous or inappropriate a conversation, the more interesting it is."-Scott Adams
haha is offline   Reply With Quote
Old 06-17-2010, 09:36 PM   #19
Full time employment: Posting here.
 
Join Date: Oct 2009
Posts: 943
Quote:
Originally Posted by haha View Post
Grantham: Stocks Still Above Fair Value « The Guru Investor

I feel like we are somehwat caught between a rock and a hard place. There is a binary inflation/deflation problem which makes it nerve wracking to just refuse to play with equities. At the same time, few things seem to be in bargain territory, unless you define bargain as any amount less than it once was.

Ha
Haha,

I, too, share your dilemma on the current equities markets given the yin and yang of inflation/deflation.

All though it will be an anathema to many here, IMHO the current equity market is one to “rent” and not “own”. From what I can tell we are banded in a range of 9,500 to 10,500 and there is money to made working the cycles. There are a number of high dividend stocks that provide some downside protection, but still provide the volatility to make a quick profit.

That having been said there are opportunities (not many) to add to long term positions if you are careful.

Like the sergeant on Hill Street Blues used to say: “Be careful out there…”
__________________
LARS is offline   Reply With Quote
Old 06-18-2010, 06:16 AM   #20
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Gone4Good's Avatar
 
Join Date: Sep 2005
Posts: 5,381
Quote:
Originally Posted by LARS View Post
From what I can tell we are banded in a range of 9,500 to 10,500 and there is money to made working the cycles.
What's special about 9,500-10,500?
__________________

__________________
Retired early, traveling perpetually.
Gone4Good is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Bernanke Speaks Purron FIRE Related Public Policy 22 02-25-2009 09:55 AM
J Grantham Asset Class Recos wildcat FIRE and Money 2 10-19-2008 07:55 AM
Jeremy Grantham Doesn't Think Highly of The Maestro Greenspan haha FIRE and Money 10 04-29-2008 06:14 PM
Oh man this one speaks for itself! Wow! newguy88 Other topics 10 02-17-2008 06:56 AM

 

 
All times are GMT -6. The time now is 11:41 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.