Steve O
Recycles dryer sheets
- Joined
- Dec 16, 2007
- Messages
- 291
1175 and 10850
I'll buy VTI, total stock market...
I'll buy VTI, total stock market...
Here's a good one for the pessimists...
New Dow high ahead? Happy talk feeds sheep Paul B. Farrell - MarketWatch
Over and over it has been shown that unusually good 10 to 20 year results come from an investment made when PEs were low, and sold when they were high. Contrariwise, buying high PE and selling anything other than an equally high of higher PE results in either lackluster or disastrous results over these very meaningful timeframes.
So right now PE10 is almost 22; this is not as high as it has been, but other than the recent bubble it is very high indeed. The top in 1929 was around this level, as was the top in 1966.
A lot of things can happen, but IMO one of the least likely is that a new real bull market started in March 09. Perhaps Zimbabwean inflation might make stocks fly, but the history of inflation at the levels that we have experienced before in the US is that they lower PE ratios enough to more than counteract any good effect of the inflation on corporate profits.
Deflation also kills PEs, and profits. So we are in a sweet spot, where of all the things that can happen, only one is good and it is very unlikely. The one positively good outcome is that inflation stays low but positive, and that PEs continue to surge higher.
We are in a tough spot. Returns on quality fixed instruments are very low, taxes are likely to go higher, and equities at best offer rewards only by taking large risks.
Eventually we will once more have a following wind, and that will be the time for much more adventurous allocations.
Ha
Yeah, I'm 44 now and after seeing what I saw in 2008-09, I'm not sure I can stomach much more than 60/40 even though that's probably a wee bit on the conservative side for a couple who probably have a collective 40-45 year joint life expectancy remaining.Being younger, I can and probably should be more aggressive than you. However, my 80/20 is too aggressive so I am going to be taking ~2% off per 100 point increase in the Dow, so if we see Dow 12K by the end of the year I'll be back down to a 60/40 AA. If on the other hand we see Dow 9K, I'll have generated a modest amount of option premium for the covered calls I've written.
A low price and PE is easier to detect than a high one. Current PE may signal it's not a good time to buy but it doesn't say sell. I’m not challenging you – just trying (like you) to determine if the current PE is high because the numerator (price) is high and likely to fall or the denominator (profit) is low and likely to continue to rise.Over and over it has been shown that unusually good 10 to 20 year results come from an investment made when PEs were low, and sold when they were high. Contrariwise, buying high PE and selling anything other than an equally high of higher PE results in either lackluster or disastrous results over these very meaningful timeframes.
A low price and PE is easier to detect than a high one. Current PE may signal it's not a good time to buy but it doesn't say sell. I’m not challenging you – just trying (like you) to determine if the current PE is high because the numerator (price) is high and likely to fall or the denominator (profit) is low and likely to continue to rise.
With respect to the numerator vs denominator, use of PE10 pretty well guarantees that it is the numerator. To see why this is correct (or not), it may be necessary to read the books and from one's own opinions.July 10, 2007, 10:54 am
Citigroup’s chief executive, Charles O. Prince, says his bank hasn’t pulled back from making loans to provide funds for private equity deals, despite a skittish credit market and concerns that the recent run of big buyout deals could be losing steam.
But Mr. Prince used an interesting metaphor to describe his company’s situation as a major provider of financing for leveraged buyouts. “As long as the music is playing, you’ve got to get up and dance,” he told The Financial Times on Monday, adding, “We’re still dancing.”
Being younger, I can and probably should be more aggressive than you. (Clifp)
A low price and PE is easier to detect than a high one. Current PE may signal it's not a good time to buy but it doesn't say sell. I’m not challenging you – just trying (like you) to determine if the current PE is high because the numerator (price) is high and likely to fall or the denominator (profit) is low and likely to continue to rise.
I I think we are more likely than not to see at least another quarter, maybe two, of positive news. Not just profits but tax revenues, trade numbers and employment, and is the type of environment where large corporations tend to make their revenue and profit targets.
– just trying (like you) to determine if the current PE is high because the numerator (price) is high and likely to fall or the denominator (profit) is low and likely to continue to rise.
I think the P/E on Intel is currently 12, so apparently there are still some stocks out there not bid up to excessively high P/Es.Intel's report today of better than expected earnings $.43 vs .38, optimistic forecast and plan to hire a couple of thousand people, does bode well for a least a few more quarters of growth on the numerator side of the equation.
Thanks for that important detail. Articles never state which P/E they are using when they make pronouncements - very sloppy!The above P/E ratio of INTC is actually forward P/E, while the trailing P/E is around 30.
It's OK. Speaking as a holder of Intel shares as well as those of other chip makers, I am not [-]selling[/-] rebalancing. Yes, the glass is half-full, and I am waiting for it to get near full before I will take a sip.
The numerator drives the current PE10 calculation but not the predicted outcome of a future lower PE and below average returns for the upcoming decades. If you believe low returns will be the result of sustained low E then the price should eventually fall and stay low. If you believe returns will be low due to high volatility then price will continue to rise and fall. These two scenarios require much different portfolio strategies.With respect to the numerator vs denominator, use of PE10 pretty well guarantees that it is the numerator. To see why this is correct (or not), it may be necessary to read the books and from one's own opinions.
The numerator drives the current PE10 calculation but not the predicted outcome of a future lower PE and below average returns for the upcoming decades. If you believe low returns will be the result of sustained low E then the price should eventually fall and stay low. If you believe returns will be low due to high volatility then price will continue to rise and fall. These two scenarios require much different portfolio strategies.
Actually, Ha - I found your post and the resulting discussion highly valuable, so I am very glad you posted it.
Audrey
And closed there on healthy volumeOK - so it took a couple of days. But with that impressive Intel report, S&P500 crossed above 1200 first thing this morning.
Audrey
No kidding - that ended up being a very healthy leap on healthy volume! 1210 no less!And closed there on healthy volume
Well, it may surprise you, but I'm a long term bear too.Still a long term bear but I like $$$