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-   -   The Market is Now Fairly Valued (https://www.early-retirement.org/forums/f28/the-market-is-now-fairly-valued-33864.html)

twaddle 03-06-2008 10:06 PM

The Market is Now Fairly Valued
 
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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 03-06-2008 10:10 PM

Look out below!

Notmuchlonger 03-06-2008 10:17 PM

The END IS HERE:dead::cell:

Brat 03-06-2008 10:27 PM

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 03-06-2008 10:50 PM

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

haha 03-06-2008 11:20 PM

Quote:

Originally Posted by samclem (Post 625179)
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 03-06-2008 11:25 PM

Quote:

Originally Posted by twaddle (Post 625161)
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 03-06-2008 11:31 PM

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 03-06-2008 11:47 PM

Quote:

Originally Posted by twaddle (Post 625195)
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 03-06-2008 11:56 PM

Quote:

Originally Posted by haha (Post 625202)
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 03-07-2008 12:00 AM

Quote:

Originally Posted by twaddle (Post 625207)
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 03-07-2008 01:40 AM

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 03-07-2008 07:16 AM

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 03-07-2008 07:25 AM

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

W2R 03-07-2008 07:29 AM

Quote:

Originally Posted by donheff (Post 625258)
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. :cool:
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 03-07-2008 07:36 AM

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 03-07-2008 07:38 AM

Quote:

Originally Posted by haha (Post 625190)
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 03-07-2008 07:42 AM

Quote:

Originally Posted by laurencewill (Post 625220)
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 03-07-2008 07:51 AM

We are stuffing as much as we can. Like little squirrels.:-X

Dawg52 03-07-2008 08:13 AM

Quote:

Originally Posted by lucija (Post 625269)
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.


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