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You are saying that while stock prices have gone up since 2009, earnings haven't, right? So, your conclusion is that the current bull market is not driven by fundamentals, which historically will precipitate a downward correction to get PEs back in-line with earnings.
I guess I'm surprised that the earnings seem so low, as I thought corporations have been making record profits.
In any case, I appreciate you digging into the fundamentals issue...it will get us all thinking.
For example, your "Bull Fundamental Ratio" would be infinite in an ideal bull. No PE expansion, just price rise driven by earnings expansion. I like it!
Charles, right, while earnings have increased...they have not increased nearly enough to justify the move IMO...which is why it's taking more PE expansion to get the same gain.
And yes, theoretically in an ideal Bull market there is no upper limit to the "Bull Fundamental Ratio".
You have to ask what does fundamentally driven mean? The input data and time frames are all subject to manipulation. The events of 2008 have made me cynical.
Although, I stated that I was going silent and become a lurker I came across this and thought I'd post this under the Wall Street Ranter's post. It is form Crossing Wall Street and it has to do with forward earnings estimates and trends.
Reply to @Investor: False negatives and False positives? Be aware that this in not any sort of short-term timing indicator...this is more so just something to be "aware" of.
Reply to @Hiyield007: It certainly would, But I don't think it would do any good to use a traditional PE ratio as it is not cyclically adjusted in any way...the traditional PE ratio is actually gonna be the highest at the bottom because earnings are temporarily depressed.
Reply to @Hogan: Cynicism isn't a bad thing. After all I'm just some guy on the internet for all your purposes. It's just an observation and take it for what it's worth (which maybe is more to me then it is to you).
Hi Ranter: With some trepidation I'll note that on your linked site (which looks very sharp) you recommend John Hussman as one of 3 managers you like going forward. In specific, you recommend his "flagship" HSGFX. The last thing I want is to engage in a drawn-out discussion of this fund or its manager - having pretty much beaten that dog to death (figuratively speaking) over past 2 or 3 years. So, I won't respond further - not wanting to repeat points already made in past discussions by myself and many others. Nor do I wish to appear to have any kind of vendetta here. I don't.
However, I'd be curious if you have a significant portion of your personal money in HSGFX and how long that has been there. How do you reconcile the fund's +1.5% annualized return over the past decade with your own investment style, circumstances and needs - whatever those may be? Thanks.
Reply to @hank: I'd be curious about Hussman as well, although there is some discussion as to why in the article. I agree on Canadian home prices in another article (I own a bit of a Canadian apartment REIT - at the core, I see rental demand in Canada continuing for some time to come, whereas I wouldn't own an apartment REIT here.)
Reply to @hank: No trepidation needed, everyone makes their own investment decisions! I understand about the discussion and I already discussed on this board a little too when I made the post and stand by same points. It's the managers process I am looking at and whether I think the same or new mistake will be made in that process going forward -- obviously I don't. I have about 10% of my portfolio in the fund......I originally bought May 2007..you made me go look (and very recently re-balanced to it) clearly that's a full market cycle and he underperformed ---although surprisingly, given the 09 mistake, he was still outperforming the S&P 500 up to December 2011....obviously trailing hard now
To your point of my investment objective, no a 1.5% annualized return over the past decade does not meet my investment objective. However, an annualized return of 1.8% since August of 2000 (coming up on 13 years) also does not meet my investment objective (the return of the vanguard 500 index fund). But how many people are invested in something like that? A lot still. Why? Clearly because they don't think the last 13 years will look like the next 13 years. As for me I don't think Hussman's last decade will look like his next market cycle. And while I hope for more then 4.5% annualized over the next market cycle (4.5% is his annualized return since inception) I would actually be content with that return and given his low correlation with everything else I would be satisfied with his historical average. The reality is this analysis really comes down to what data people want to pay attention to and most often it is the most recent data.
So while an investment in the Hussman Fund might not make since to many due to performance since 09, The rationale being used is the same that can be said against an investment in the S&P 500 (or similar index hugging fund)
While I have only 10% of my funds in there, I stand by my post of favorite funds (they continue to be) and actually think an allocation of 1/3 in each would be a decent allocation for myself over a full market cycle (although there are too many ideas fighting for attention so it's hard to put 1/3 in any one).
Reply to @WallStreetRanter: I am interested in false negative and positive as if the false readings are common and/or persistent for a long time, it will not help me with decision process.
Comments
I guess I'm surprised that the earnings seem so low, as I thought corporations have been making record profits.
In any case, I appreciate you digging into the fundamentals issue...it will get us all thinking.
For example, your "Bull Fundamental Ratio" would be infinite in an ideal bull. No PE expansion, just price rise driven by earnings expansion. I like it!
Thanks WSR!
And yes, theoretically in an ideal Bull market there is no upper limit to the "Bull Fundamental Ratio".
The Wall Street Ranter
Although, I stated that I was going silent and become a lurker I came across this and thought I'd post this under the Wall Street Ranter's post. It is form Crossing Wall Street and it has to do with forward earnings estimates and trends.
http://www.crossingwallstreet.com/archives/2013/03/the-trend-in-earnings-estimates.html
With this, I think expectations are a little high and I am looking for a pull back during the summer months, perhaps sooner.
Until We Meet Again,
Skeeter
However, I'd be curious if you have a significant portion of your personal money in HSGFX and how long that has been there. How do you reconcile the fund's +1.5% annualized return over the past decade with your own investment style, circumstances and needs - whatever those may be? Thanks.
To your point of my investment objective, no a 1.5% annualized return over the past decade does not meet my investment objective. However, an annualized return of 1.8% since August of 2000 (coming up on 13 years) also does not meet my investment objective (the return of the vanguard 500 index fund). But how many people are invested in something like that? A lot still. Why? Clearly because they don't think the last 13 years will look like the next 13 years. As for me I don't think Hussman's last decade will look like his next market cycle. And while I hope for more then 4.5% annualized over the next market cycle (4.5% is his annualized return since inception) I would actually be content with that return and given his low correlation with everything else I would be satisfied with his historical average. The reality is this analysis really comes down to what data people want to pay attention to and most often it is the most recent data.
So while an investment in the Hussman Fund might not make since to many due to performance since 09, The rationale being used is the same that can be said against an investment in the S&P 500 (or similar index hugging fund)
While I have only 10% of my funds in there, I stand by my post of favorite funds (they continue to be) and actually think an allocation of 1/3 in each would be a decent allocation for myself over a full market cycle (although there are too many ideas fighting for attention so it's hard to put 1/3 in any one).