The Market is Now Fairly Valued

[twaddle]

Time to shine the bat signal! Tobin's Q now indicates that the market is fairly valued. I think.

The fed just released 2007Q4's flow of funds report, so I decided to calculate Tobin's Q according to this site:

The Q-Ratio: Valuing the Stock Market

Q recently reverted to its long-term mean.

Thought you might want to know.

 

[REWahoo]

Look out below!

 

[Notmuchlonger]

The END IS HERE

 

[Brat]

It may be fairly valued but it will go much lower before it trends up. Needs to get down to about .5, at least.

 

[samclem]

Maybe if the market drops a few dozen percent, h***s will buy stock.

 

[haha]

Maybe if the market drops a few dozen percent, h***s will buy stock.

Funny thing about old *****. Since he was kicked off this board, his recommended portfolio would have done very, very well, with almost no risk.

Not bad for someone who was branded a raver.

Ha

 

[haha]

Time to shine the bat signal! Tobin's Q now indicates that the market is fairly valued. I think.

The fed just released 2007Q4's flow of funds report, so I decided to calculate Tobin's Q according to this site:

The Q-Ratio: Valuing the Stock Market

Q recently reverted to its long-term mean.

Thought you might want to know.

Twaddle, what is the period of that MA?

Ha

 

[twaddle]

It's the running average, so the final value is the average over 55 years. I get an average of 0.75. Smithers uses a fixed value of 0.63 for the average, but I have no idea why -- it obviously changes with time.

By Smithers' metric, the market is still 17% overvalued.

 

[haha]

It's the running average, so the final value is the average over 55 years. I get an average of 0.75. Smithers uses a fixed value of 0.63 for the average, but I have no idea why -- it obviously changes with time.

By Smithers' metric, the market is still 17% overvalued.

I see. No data is dropped.Ha

 

[twaddle]

I see. No data is dropped.

Right. I believe they have a name for dropping data points that don't support your thesis: "lying."

I kind of like q as a metric, but I can't help notice that the market will happily stay at a 50% discount to fair value for over a decade. Especially after being above fair value for a while....

 

[haha]

I kind of like q as a metric, but I can't help notice that the market will happily stay at a 50% discount to fair value for over a decade. Especially after being above fair value for a while....

That seems like a small problem. Dividends will be high, and unless the country is heading down the toilet permanently you would eventually get a big gain.

Ha

 

[laurence]

I'm putting more in my 401k this year than ever, so as a buyer with 22 years left in the work force, this is great news. Hopefully fear will keep the prices low for a few years.

 

[donheff]

Great news. Now that the market has finally gotten to the "right" level we can expect equilibrium from here on out. A steady 10% per year. I think I will raise my SWR to about 6%.

 

[al_bundy]

so i guess we are in for 10 years of being below fair value now just like in the 1970s?

 

[W2R]

Great news. Now that the market has finally gotten to the "right" level we can expect equilibrium from here on out. A steady 10% per year. I think I will raise my SWR to about 6%.

Wouldn't that be great? Ah, blissful daydreams.

I would be so totally thrilled if the market went up even 5% this year.
What a great change that would be - - to see my portfolio gaining instead of losing on most days.

As for reversion to the mean, and other predictive strategies: I am not convinced, and believe it is reflective of mankinds eternal attempt to control the uncontrollable and predict the unpredictable. We just hate to sit around with our mouths hanging open while we are buffeted by the vagaries of fate, or the market in this case.

Doesn't make these ideas uninteresting, though.

 

[freebird5825]

just learned something new (Q-ratio) again. this board rocks!
thanks for the info. off i go to that site to get "smarter". i'll let ya know if (when) that happens.
sitting at 51/49 stocks/bonds, i am watching my performance in this mess very closely. no changes will happen, but this market is a good lesson...

 

[cute fuzzy bunny]

Not bad for someone who was branded a raver.

My recollection was that he was dumped for threatening peoples kids and blowing up every thread with 11 page unrelated diatribes.

As far as his portfolio, TIPS bought at inception at rates you cant get close to now and CD's sure dont have a lot of negative volatility, although his style did poorly through most of the 90's and except for 3 years of the last 8, pretty badly as well compared to more balanced approaches.

Wellesley did better. A lot better.

He's also selling his house right now due to waning net worth, and rumor has it that his wife dumped him.

So maybe not a great strategy after all.

Oh, and he IS a loon as well.

 

[lucija]

I'm putting more in my 401k this year than ever, so as a buyer with 22 years left in the work force, this is great news. Hopefully fear will keep the prices low for a few years.

I am with you on this one... we still have at least 10 working years in front of us (more like 15 actually), so this is actually somewhat of a good news!

 

[Notmuchlonger]

We are stuffing as much as we can. Like little squirrels.

 

[Dawg52]

I am with you on this one... we still have at least 10 working years in front of us (more like 15 actually), so this is actually somewhat of a good news!

Well for the ones who just retired, not so good. Of course I will rebalance(again) if the market goes further down, but not what I wanted to see as a new retiree.

 

[haha]

My recollection was that he was dumped for threatening peoples kids and blowing up every thread with 11 page unrelated diatribes.

As far as his portfolio, TIPS bought at inception at rates you cant get close to now and CD's sure dont have a lot of negative volatility, although his style did poorly through most of the 90's and except for 3 years of the last 8, pretty badly as well compared to more balanced approaches.

Wellesley did better. A lot better.

He's also selling his house right now due to waning net worth, and rumor has it that his wife dumped him.

So maybe not a great strategy after all.

Oh, and he IS a loon as well.

Well, you seem to have a rather intimate knowledge of his posts, his investing career and his home life.

I grant you that I know nothing other than that he was a bore-which I suppose could hardly be said to be grounds for banning -and that he advocated investing in TIPS until stocks were more cheaply priced.

Even if he got the poor prices that you state his return would still have been positive, and still low risk. In my case am demanding but not excessively so when judging my TIPS real-rate entry point, and I have to say that the low risk is great, and as it has turned out, the return has also been very good.

I think it may now be time to bail out of some of these, in favor of some cheap equities. But who knows- TIPS remain very low risk, and while there are sure some cheap equities, one does have the problem of mis-timing and having them get significantly cheaper.

Ha

 

[RockOn]

Could I ask, who are we talking about? Can his name be mentioned?

 

[Notmuchlonger]

He who must not be named

 

[RockOn]

Does his last name rhyme with Rennet or Tussell?

 

[lucija]

Well for the ones who just retired, not so good. Of course I will rebalance(again) if the market goes further down, but not what I wanted to see as a new retiree.

Yes, I hear ya... I can see how these can be pretty unsettling times for a newly minted retiree. A gentle up, up, up market would be of benefit to all... wishful thinking, right?