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Open Thread: What Are You Buying/Selling/Pondering (HFIB Edition)
We've all read about the rubber band theory of the market averages. First, it overshoots on the upside, then it over-downshoots on the downside. What's in the middle? Perhaps it's fair-market value. So maybe what MarkM is suggesting is that the rubber-band counter reaction still has a way to stretch.
I am thinking the markets will become oversold and with this they can then be bought at a discount to their fairvalue. Anyway, that's my current thinking. But, one can never be certain. That is why I just did a little buying today. Anyway, I'll be collecting the dividends while I await higher valuations. And, so it goes.
Reply to @Old_Skeet: Without getting into the specifics of my calculations, I can say that earnings are unsustainably above trend here and are one of the most mean-reverting statistics in capitalistic finance. Once they are properly adjusted for their cycle THEN appropriate long term PE multiples can be applied to arrive a FV for the SP500. If we agree that 15.8 is the correct historical multiple you can reverse engineer where I think adjusted earnings should be.
In 2008-2009, fair value was reached but only for a very short time. The overshoot to the downside was shallow also. Others may argue "new paradigm" but they must assume the burden of proof on that. The market actually spends VERY LITTLE of its time at fair value historically. Since LTCM and heavy Fed interventionist policy, it has been spending most of the time persistently above fair value. ( New Paradigm!)
I agree that there is technical support at the 1750 level that has now been breached and that reported SP500 earnings can be used to argue that fair value exists at higher levels than what I state, and even much higher levels. I don't agree with those methodologies though and my portfolios are at their lowest levels of equity exposure since 2006-2007. Doesn't mean this cant hold here and go even higher. 1998-2000 was quite exciting and also, frankly, insane. I am quite content with either direction this takes now, have taken all the profits I am going to for this bull/ bear cycle and I am awaiting the next.
Reply to @Old_Skeet: And while it's fun to conjecture (and potentially profitable), those with a very long term horizon shouldn't put much stock (no pun intended) in all of this. Stay the course!
Reply to @Old_Skeet: "review of my portfolio through Morningstar’s Instant Xray ..... I did notice where emerging markets now account for 3.8% as compared a month ago at about 4.8%. So, it appears some of my funds have trimmed emerging market holdings and rotated to other assets."
Umm - Maybe the relative % fell off because of the precipitous drop in value emerging market securities have undergone recently?
Reply to @Charles: Hi Charles- There are other ways to get to fair value that don't include a down draft of that size. One of them would be a choppy years long, sideways market in which earnings don't decline much in nominal terms. Earnings just flatline for a long period and the gap closes year by year. You could see that for instance should inflation run higher than trend for a number of years and participants reset their discount models. A mid-70s kind of outcome. Not pleasant either. Sort of the difference between an amputation and persistent debilitating nerve damage in a limb.
Market is short term way oversold and we are due for a relief rally. I am just an observer at this point though waiting for bargains. I hope I get them but at this point it doesn't matter.
Just mailed a check and bought a tiny bit more of MAPOX. Growing it in baby-steps. That's all THIS investor can afford. If the M & P small-cap fund produces returns, I will once again siphon that into MAPOX after the 2015 New Year, as I did, just last month.
Comments
Yes, Perhaps.
I am thinking the markets will become oversold and with this they can then be bought at a discount to their fairvalue. Anyway, that's my current thinking. But, one can never be certain. That is why I just did a little buying today. Anyway, I'll be collecting the dividends while I await higher valuations. And, so it goes.
Old_Skeet
In 2008-2009, fair value was reached but only for a very short time. The overshoot to the downside was shallow also. Others may argue "new paradigm" but they must assume the burden of proof on that. The market actually spends VERY LITTLE of its time at fair value historically. Since LTCM and heavy Fed interventionist policy, it has been spending most of the time persistently above fair value. ( New Paradigm!)
I agree that there is technical support at the 1750 level that has now been breached and that reported SP500 earnings can be used to argue that fair value exists at higher levels than what I state, and even much higher levels. I don't agree with those methodologies though and my portfolios are at their lowest levels of equity exposure since 2006-2007. Doesn't mean this cant hold here and go even higher. 1998-2000 was quite exciting and also, frankly, insane. I am quite content with either direction this takes now, have taken all the profits I am going to for this bull/ bear cycle and I am awaiting the next.
Umm - Maybe the relative % fell off because of the precipitous drop in value emerging market securities have undergone recently?
Market is short term way oversold and we are due for a relief rally. I am just an observer at this point though waiting for bargains. I hope I get them but at this point it doesn't matter.
Good investing!