Usually, I look for an undervalued area of the market to position in a little new money from time-to-time. In review of Bespoke’s Oversold/Overbought graph, linked below, it looks as though everything is mostly overbought.
http://www.bespokeinvest.com/thinkbig/2013/10/17/back-to-overbought.htmlIn addition, Morningstar is reporting that stocks, in general, are now selling at about a five percent premium.
http://www.morningstar.com/market-valuation/market-fair-value-graph.aspxIn review of Ron Rowland’s most recent weekly newsletter, Invest With An Edge, there seems to be little gems to be found form its review either.
http://investwithanedge.com/newsletter-archives/101613-crisis-averted-againI guess, sometimes there is nothing to do, for a value investor like myself, but to sit back and enjoy your positions knowing that you bought and positioned into them when things were selling at lesser valuations. Can stocks go higher? Yes, indeed, as long as investors are willing to pay more for a dollars worth of earnings going forward than they have in the more recent past and/or earnings continue to grow.
In my readings, the past couple of days, I have learned that on full year earnings basis the S&P 500 Index is projected to earn around the $108.50 range this year. At current valuation of 1745 this equates, by my math, to a P/E Ratio of about 16.1. On forward earnings estimates of $118.50 this equates to a Forward P/E Ratio of 14.7. On a blended approach, I compute a Blended P/E Ratio to be about 15.4.
From review of my P/E analysis things seem to be pretty much in line with stocks, in general, selling within an established rule of thumb that a fair value P/E Ratio range of 14 to 16 is normal. And, as you have just read, I cut earnings three different ways.
With this, I think I’ll wait for a five percent (1660 range) dip before I do any major equity buying. My portfolio is generating a good cash distribution of better than 1.25% per quarter on amount invested. With little value to be presently found in the market … I guess I’ll build cash.
Wondering what you might be thinking?
I wish all … “Good Investing.”
Skeeter
Comments
Regards,
Ted
Yes, I am letting my winners run as I am well within my equity allocation range of 40% to 60% within my portfolio. I don't recall writting ... I was selling ... I am just not buying at these price levels. Let's just say ... I've got all the equities I want at this point in time. I am much like a car buyer kicking tires on antiques and classics ... looking for a deal (steal). Just this past week I was in Myrtle Beach, SC at an annual car show and passed on a 1930 Model A priced down form $18,500 to $14,500. It was a clean well restored car ... but, if I were to resale it ... How much could I profit on it? I passed. If the current seller was having trouble getting off of it ... I felt I'd be on the same avenue. Stocks are much the same way ... Gotta buy at a good discount to make good money. Presently, things don't seem to be selling within my buying range. And, the seller (a dealer) passed on my cash offer on the car.
Skeeter
It seems, 1660 range got streached down to the 1600's (fair enough). Yes, I might have to wait a while ... But, at least if the market pulls back I want be upside down in my existing positions. I am a happy camper from where I am position. There is a lot of hipe in the market as I write and let's just hope the party keeps going for those that are currently buying in at these all time high price levels. Remember the Dot Com Party? I don't think it ended well and left a lot investors broke. But, not me. I have a rule ... It is better to miss a deal rather than to over pay.
Skeeter
Regards,
Ted
Yeah, I too see few 5 star ratings based on M* fair value. Although, metals (basic, industrial, precious) remain at healthy discounts. Some energy, like Scott points out.
I trimmed equity exposure a bit when Bernanke surprised folks with taper delay. Lost money on that but slept a little better during the recent budget fiasco.
Still, I think I'm in Ted's camp and suspect stocks will continue to advance, now that the budget BS is behind us...at least through year end. Unless we get some lousy surprise.
Will be on look-out for pull-backs of good companies. For example, last Monday ATI announced its 3Q results would be soft. Stock immediately dropped heavy, 5-6% to about $29.40. It closed Friday at $31.52. A 7% move. Similarly, WFC dropped 3% during recent earnings call to something like $40.50. It closed Friday at $42.68. A 5% move.
Hope all is well.
Thanks for stopping by and for your comments. I am in agreement with much of your thoughts and for some of the same reasons I have not continued to sell my equities down any farther. I am more of a value style investor rather than a momentum style investor. No doubt, the market has good momentum; but, those forces can change very quickly. I think it prudent for one to invest within their tollerance for risk ... and, I think there is a good bit of risk presently out there.
You might enjoy reading what Dr. Mandell writes in his most recent Mutual Fund Research Newsletter. I have linked it below for your and others reading enjoyment.
http://funds-newsletter.com/oct13-newsletter/oct13-new.htm
Thanks for stopping by.
Skeeter
Two of the three best investing decisions I ever made caused me to 'leave money on the table' bigtime. I sold half of my stocks in January of 2000 and missed the furious next two month rally, the final blow-off as they say. Again I sold half my stocks during the recent unpleasantness of 2008 and didn't get back in during the euphoria caused by TARP's finally being passed. Another furious rally followed that I missed. The subsequent decline was around 40%.
Seems to me that prudence in investing is not feeling like a fool when you're missing out on a rally. This current rally following the end of the partial government shutdown looks to me a lot like the euphoria after TARP's passage, but then I don't know anymore than those economists know. I subscribe to Benjamin Graham's old adage of never being less than 25% invested in stocks nor more than 75% no matter what you think about the future direction of the market. If you're pessimistic about valuations or monetary policy or whatever (yes, I am), you can enjoy the gains on your 33% or so in stocks if the market continues to rally and enjoy admiring your own wisdom at having sold down to that 33% if the market tanks.
Thanks for stopping by and for making your comments.
My late father taught me ... As an investor ... You want go broke making profit ... But, you sure will making losses. Watch what you buy and what you pay for it. His thoughts were that when the markets were at, or near, all times highs it was because of investors over enthusiam in bidding prices upward ... and, conversly, when investors took a bearish outlook many times the markets would become oversold in their rush for the exit.
Still today, I follow his guidance.
Skeeter
I hope you are doing well and your portfolio is progressing to your liking. When the markets are fully valued it is one of the hardest times for me to put new money to work. A dollar cost average approach is a great way to approach it when an investor is in the accumulation stage. I have now past that stage at age 65 although I still need to grow my principal to offset inflation. I like it when I can buy when things are on sale ... and, they do go on sale from time-to-time. I have heard it said by some that it is not uncommon to have a 10% pull back in the markets at least once a year. What I am finding uncommon is the like there of this sorta of pull back. At some point in time it will come.
Skeeter
Good idea.
Currently, conserative allocation funds make up about 20% of my overall portfolio and they are found in the hybrid income sleeve which is part of the income area of my portfolio.
My current target allocation for my portfolio is cash 20%, income 25%, equity 45% and alternative 10%. My portfolio is divided into four areas. In the cash area there are two sleeves one being demand cash sleeve and the other being investment cash sleeve. In the income area there are two sleeves an income sleeve and a hybrid income sleeve in which the conserative allocations are mostly found. In the growth and income area there are four sleeves. A global equity sleeve, a global hybrid sleeve, a domestic equity sleeve and a domestic hybrid sleeve. In the growth area of the portfolio there are also four sleeves. A global growth sleeve, a domestic large and mid cap growth sleeve, a domestic small and mid cap sleeve and the final sleeve is a specality sleeve that can hold most anything that is of a specalized nature.
With this I have conserative allocation funds covered.
Thanks again for the suggestion.
Skeeter
Meh. (translated: It's early and not that much.)
"Companies buying back lots of shares."
True, and I think you're seeing noticeably reduced supply of shares available vs historical norms. Not every company has demonstrated skill at buying back shares (big buybacks right into the 2007/2008 heights), but I suppose that's for another thread.
"Housing increasing."
I think you had a situation where, much like a stock heading lower, housing ran out of sellers. The second that happened, things started clicking and that's when prices started to head higher. You are still not seeing first time buyers near the level of historical norms, cash purchases are way higher than historical norms. I think housing has bottomed, but I also think enthusiasm has gone a little too far the other way.
People are not getting mortgages, for a multitude of reasons. You saw the rush of cash buyers and investors, I just question how sustainable that is for one and two, whether or not buyers like Blackstone will start looking to offload. If they start to offload, are there are going to be traditional buyers there to pick up the slack? Lastly, while you're seeing a bit of mortgage activity, the fact that it really seems to cool off considerably when rates head higher than 4.5% or so (cheap historically) is telling. Also, for those applying for a mortgage, as easy as the process was in 2005/6, it has really swung the other way (not saying that's necessarily bad or that people shouldn't.)
I think the best thing that could happen to housing is another mild dip/flat performance for a while, then prices going up a more realistic 2-3 % a year for a while.
I do think one of the most interesting elements of housing was that, as much as the prices dropped, materials didn't drop as much. A big appeal of housing at the lows, in many cases, I think was replacement cost/value. May still be an appealing element in some areas.
"IPOs starting to heat up a bit."
Cash sloshing around looking for a place. Sprouts with 200 p/e? Noodles and Company, that re-vo-lu-tionary dining experience (it's not bad, but it's not exactly magnificent, either), with a freaking 400 p/e? Me thinks things are getting a tad ridiculous with some of these names.
"Money remains historically cheap."
And probably will for a while to come and probably longer than anyone can expect. Mortgage rates remain historically cheap, but demand gets chilly when rates start moving towards 4.5%-5%. I have family members who in the '70's had to make a decision whether or not they wanted to buy REAL quick because someone else did, and rates were towards 8%.
"Although fundamentals don't look so bad. "
I don't think things are great (although I don't think they're "full Hussman" either) and I do think you have a multi-speed economy with a lot of underlying problems that were never addressed after 2008. That, and with the easiest monetary policy in history, we're just sort of muddling along.
However, there are still themes I like (see GE, which is a play on a number of themes I think will continue to do well and had a pretty good quarter) and I think people have to remain invested.
I can feel a lot of concerns short and long-term with the big picture and still find a lot of individual names that I like. I think there's even value in spots, like oil majors.
I look at a Fidelity National Information Services (FIS), a company that:
FIS processes more than 27 billion transactions every year.
In 2012, FIS moved more than $5.5 trillion across the globe.
Eight out of the top 10 global banks are FIS clients.
Nearly 75 percent of all U.S. credit unions utilize a solution or service from FIS.
FIS serves 18 of the top 25 national retailers.
I continue to think the way that people deal with banking is going to change significantly, from things like Amex's Bluebird card to Capital One's banking cafes, which are hugely popular. Any investment is a risk, but with things like mobile payments and changes in how people interact with banks, I like a financial tech company like FIS (or Fiserv is another example.)
Capital One Cafes:
http://cafes.capitalone360.com/
Additionally, FIS is handling payment processing/back-end via its network when the Merchant Customer Exchange mobile payment system comes online. MCX is a group of retailers (Wal-Mart, Target, 7-11, CVS, Best Buy, Dunkin and many others - website http://www.mcx.com/) coming together to have one mobile payment format.
Gemalto, which I also own, is creating the mobile wallet. Gemalto will get paid every time there is a transaction using the MCX wallet. I think there's a lot to like about Gemalto otherwise though, including relationships with governments around the world (they provide e-passports for many countries, for example - http://www.gemalto.com/govt/customer_cases/)
Gemalto is also one of the companies working on Project E-Go (http://www.gemalto.com/ego/, http://www.gemalto.com/techno/strategic-directions.html), which I think is just ridiculously cool tech whether or not it goes anywhere. "eGo is a revolutionary technology invented by Gemalto and now used by many partners in the European Catrene project, part of Eureka. eGo is a digital wallet embedded into a wearable device that can be located anywhere on the user, for example in his/her clothes. When wearing eGo, the user simply touches an eGo proxy device which digitally connects the wallet to the device. Once this through-the-body connection is established, a fast wireless network connection is established from the eGo wallet to the eGo proxy, enabling a wide range of services such as payment, transport, physical access and so on."
--
Stuff like that. I can be negative on a lot of things, but I think there are always interesting stories (and what might be interesting to me might not be someone else, but there's always something is the idea.)
Even a GE works because it is in a number of right places at the right time and is making the choice to focus on those themes. I still think the company mishandled 2008 both on a large scale and small scale, but the more I looked, the more I liked the moves that the company was making.
I like Amerisource Bergen (ABC), which I've mentioned a couple times. I like Qualcomm (QCOM). Just to throw out a couple random likes.
For me it becomes a matter of something that I think has a longer-term theme or theme and that I can imagine holding for as long as 3-5 years. As I've said before, I'm just tired of trading and having to react to short-term noise.
Thanks for stopping by and sharing your thinking with the board. I know I certainly find value in your post and I believe others do as well.
Skeeter
Hi John,
Sometimes the best course of action is to sit back and watch. In time, the market will correct and since I am pretty much fully invested within my asset allocation I feel I am favored with that luxury.
Thanks for stopping by and making comments.
Skeeter