Do you really think the market is cheap?

[wildcat]

Just fun, wondering what everyone's thoughts were on this one.

Personally, despite saying the % decline, I don't think the market as a whole is all that cheap given the variables at play.

Also, it seems some sectors have rallied off lows and I personally see no reason for that to happen. Maybe just short covering but I certainly think some of those sectors will drift lower - cough retail.

If the S&P 500 P/E is 15 or so, doesn't that pretty much indicate par historically? Your thoughts?

 

[bssc]

Cheap.

 

[LOL!]

I don't think it's particularly cheap, but it will pop as soon at the bailout is enacted. And it will be enacted ... it's just a matter of time. Of course after the pop, it could decline to even lower than now, but who cares?

 

[Dawg52]

Cheap.

I hope your right. And while I'm hoping, I hope it won't be a few months down the road.

 

[HFWR]

I don't know... But my bunion tells me we need to drop another 10-20% to flush this turd.

 

[cute fuzzy bunny]

I think the market as a whole is pretty fair priced, maybe very slightly cheap.

The S&P goes below 1080, then its starting to get cheap.

 

[Gone4Good]

Given everything that's going on, I'm really surprised we're not down a lot more. I really figured that the Monday following the Lehman bankruptcy the Dow would be down 4 digits.

Large caps are down a little over 20% from their high, doesn't seem quite enough to me. Small caps are only down a couple of percentage points (nearly hit new highs last week ).

I'm waiting for large caps to be 30-35% off their highs before I rebalance. So maybe I'll pull the trigger if we drop another 10% or so. Down ~30% from peak to trough is pretty typical for a bear market . . . this one might be a little angrier then most, though (and we're only 1 yr in).

 

[audreyh1]

Here - check out Haha's thread http://www.early-retirement.org/forums/f28/doomsday-talk-ridiculous-be-of-good-heart-38934.html which has a graph that indicates that the market has indeed finally gotten cheap by historical standards BUT is probably going to get cheaper.

Audrey

 

[CCdaCE]

I don't think it's THAT cheap, like you say, it's pretty fairly valued according to P/E.

Seems like it's a percent-off sale, but picking the percent is barely in the double digits, it seems to me.

Morningstar thinks it's about a 15-20% off sale, which is pretty good, relative to history. I guess I can't argue with that, either, since it's over the whole market.

My definition of disaster must be more doom-and-gloom than theirs. I think the value stocks would be a place to look, perhaps, like in the doomsday thread above. Seems like International is getting crushed. Just depends on where you want to look.

-CC

 

[wildcat]

That was a pretty interesting discussion. Caveat seems to be = today is cheap compared to the last 20 years or cheap compared to the last 60 years.

 

[al_bundy]

I don't think it's THAT cheap, like you say, it's pretty fairly valued according to P/E.

Seems like it's a percent-off sale, but picking the percent is barely in the double digits, it seems to me.

Morningstar thinks it's about a 15-20% off sale, which is pretty good, relative to history. I guess I can't argue with that, either, since it's over the whole market.

My definition of disaster must be more doom-and-gloom than theirs. I think the value stocks would be a place to look, perhaps, like in the doomsday thread above. Seems like International is getting crushed. Just depends on where you want to look.

-CC

i hope no one based their investing decisions on this chart

 

[CCdaCE]

Why do you say that Al ?

 

[al_bundy]

because from 2003 to 2007 they said the market was overvalued, when the SP500 doubled. as soon as the market tanks they say is now undervalued. if you sell when they say it's overvalued then you will lose years of gains.

in all my years of following the markets i never heard a credible explanation of how the market can be undervalued or overvalued. PE is completely useless except for very long term analysis

 

[ziggy29]

I don't think one can really say "overvalued" or "undervalued" based only on the current P/E ratio (or even the PE10, for that matter).

A market's "fair value" at the time depends partially on the current risk-free rate of return, at least where classic securities analysis is concerned. As a result, a P/E of 15 might be high when the risk-free return is 8%... but a P/E of 15 might be low when that risk-free return is at 2%.

 

[Canadian Grunt]

I think there is going to be more market decline so it will be cheaper next year. If the bailout happens it will not lift the economy. Check the employment numbers...people are starting to entrench.

I call a lower market in February

 

[ziggy29]

I think there is going to be more market decline so it will be cheaper next year. If the bailout happens it will not lift the economy. Check the employment numbers...people are starting to entrench.

I don't think the bailout is intended to "lift" the economy as much as to simply prevent it from going into free fall.

 

[Canadian Grunt]

I don't think the bailout is intended to "lift" the economy as much as to simply prevent it from going into free fall.

Perhaps the market will rebound faster with a limited freefall. The support does nothing to remove the problems that caused the financial crisis. Could the bail out lead to a protracted stagnation in the economy? maybe stagflation...

 

[al_bundy]

bailout is not going to bring crazy loans back so there will probably be slow growth for the next few years. think 1987 to 1994.

 

[ziggy29]

bailout is not going to bring crazy loans back so there will probably be slow growth for the next few years. think 1987 to 1994.

True. But without crazy borrowed money, the growth would more likely be much more sustainable and less subject to boom and bust. In the grand scheme of things, IF that occurred, in the long run it might be a good thing.

I'd like to see the economy based more on stability and sustainability than growth. I think we've made a lot of bad economic decisions in pursuit of almighty growth at any cost.

 

[d]

i hope no one based their investing decisions on this chart

i don't make my decisions based on it, but i do reference it from time to time ... it's just someone's opinion, but likely more informed than my own. my sense is that we've recently had a "buying opportunity" (and i've been buying) but there could well be better "buying opportunities" ahead, so i'm keeping some powder dry.

 

[CCdaCE]

because from 2003 to 2007 they said the market was overvalued, when the SP500 doubled. as soon as the market tanks they say is now undervalued. if you sell when they say it's overvalued then you will lose years of gains.

in all my years of following the markets i never heard a credible explanation of how the market can be undervalued or overvalued. PE is completely useless except for very long term analysis

I think that's the key. I wouldn't use it to market time, but it is a good indicator of whether you're getting a "good deal" or whether it'd be better to wait and buy.

It's like I value it for buying, but not for selling, and I realize I can't have it both ways, so, maybe it isn't worth much at all. I want to know if I'm getting a good deal on hamburgers, but only because I'm a consumer of sorts. It's not like I'll ever be selling hamburgers.

Make any sense?

-CC

 

[al_bundy]

absolutely not

 

[haha]

i hope no one based their investing decisions on this chart

We would never do that Al. We are waiting for a buy signal from you.

 

[Gardnr]

I think we've made a lot of bad economic decisions in pursuit of almighty growth at any cost.

Agreed. We try so hard to avoid any kind of downturn (interest rate cuts, etc.) that we allow a lot of complacency, inefficiencies and bad business practices to build up. If we keep propping it up there'll just be a bigger fall when we can't prop it up any more. We may just have reached that point.

 

[John23]

New poster. 30, on my way to my goals

I'm not in the S&P or any major index. I subscribe to the idea that the late 90's were a once in a lifetime boom, stocks got ridiculously overpriced, and it's going to take a long time to work the excesses of.

Same cycle as, late 20's to early 50's. And mid, late 60's, to the early 80's. When the public buys big, unfortunately everyone loses

I read books like Money Game (great book about the market of the 60's, reocmmended by Buffett and others). Its saved me a lot of money, the market isnt what it seems.

Also, I think we're in a commodity up cycle (Jim Rogers), of 10-15-20 years, starting in 99. Not good for stocks.

I'm not touching the big cap names (msft, etc). The banks and financials are way out of my competence level, although would be fun to guess.

I use to believe in p/e and other published figures and numbers. They dont tell you about stocks or whats going on. They wouldn't have told you about lehman's balance sheet or fnm's balance sheet.

I think we're getting close to a tradable rally (you should generally buy when guys are white with fear on tv). But I still think we're in the 4th or 5th inning of working off the 90's excesses.