tag:blogger.com,1999:blog-5389144729834496735.post2361385234671720995..comments2024-03-17T05:15:55.634-04:00Comments on The Brooklyn Investor: Tapering, Market Overvaluation etc...Unknownnoreply@blogger.comBlogger30125tag:blogger.com,1999:blog-5389144729834496735.post-85491392468461928532014-04-01T10:47:37.803-04:002014-04-01T10:47:37.803-04:00Hi, nice blog. Well you asked what makes this mar...Hi, nice blog. Well you asked what makes this market skewed, what made the P/E get so high. It was, and still is, the bullmarket hysteria in the IPOs and then Biotech and Nasdaq. Very big larce cap Biotech like Gilead and others are crazily valued, you have plenty of S&P Stocks and NasdaQ stocks with crazy multibillion dollar valuations. They all get the s&p 500 numbers skewed a bit. I see some things the same like you. Good old economy stocks are not crazily overvalued like KO (even Buffett said that he should have walked when he just talked ---> KO p/e over 40 at the 1st NasdaQ Bubble in the 99-2001 timeframe). Bye, bye from Germany.Valueinvestorhttp://aktienanalyse-fundamental.blogspot.co.at/noreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-53148503256735766792013-10-25T13:15:08.759-04:002013-10-25T13:15:08.759-04:00Is that QE is started having effect? All that curr...Is that QE is started having effect? All that currency printing has to inflate most of the assets one way or other. And the bond buying is still going on. No talk of tapering yet. I have a fear that value investors who will stay out of the market now will stay out for long long time. This bubble is gonna go up quite a lot.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-75212500487733210302013-10-02T23:00:41.234-04:002013-10-02T23:00:41.234-04:00I won't dismiss CAPE10 because the GFC was a o...I won't dismiss CAPE10 because the GFC was a once in a hundred year event. <br /><br />If GFC was indeed a once in a hundred year event, so were extraordinary profits corporates earned preceding it. So, in CAPE10, the period preceding GFC and the period after GFC will cancel out and normalize each other. I think the whole point of CAPE10 is not to exclude extraordinary periods. Johnhttps://www.blogger.com/profile/14682393043392310140noreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-83446863818297689672013-10-01T19:02:47.985-04:002013-10-01T19:02:47.985-04:00Thanks! Ive been waiting for you to write on your ...Thanks! Ive been waiting for you to write on your blog for a while now:PAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-59835252297923920562013-10-01T12:59:22.741-04:002013-10-01T12:59:22.741-04:00The Fed model doesn't make sense imho. Equitie...The Fed model doesn't make sense imho. Equities provide a longer stream of cashflows than bonds, so the duration must be much longer. Apples and oranges as far as I can see.<br /><br />My personal guess is indeed that rates will stay low for some years to come and Blackhack Ben also pointed to that. This has been discussed like a gazillion time, I know, but can the Fed become insolvent (I guess so) ? What happens if it does ? I don't have a clue here, so any insight would be appreciated (I only know that the central bank of Costa Rica was insolvent for a couple of years and nobody really cared).<br /><br />Deflation is what keeps me awake at night... and I think we are not out of the woods yet. Funny enough that my favorite one-trick pony when it comes to deflation (no names here) turned around lately and said inflation might be the bigger issue (after writing a book about the deflationary years that will come). Anyway... Prem Watsa had some thoughts about deflation in case you are interested (and also acted accordingly).<br /><br />Fully agreed. What I had in mind was some simpler stuff, like dividend income, dividend growth and growth of corporate profits adjusted for the cycle (be it CAPE, peak to peak, whatever, the results don't vary a lot). So simple in fact that even I can calculate it. No matter how I turn it, yields for a buy-and-hold investor in stocks, the S&P 500 say, are pretty low. Probably reasonable given the low interest rates but in absolute terms still low. I'd rather own treasuries here.<br /><br />EddieAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-85186754914051780462013-09-30T13:28:51.729-04:002013-09-30T13:28:51.729-04:00Thanks for posting. Those are all good points and...Thanks for posting. Those are all good points and I am familiar with most of those arguments and don't disagree. One thing that Goldman used to show was the p/e ratio average with differing interest rate levels. I don't necessarily believe in the Fed model (which would call a 50x p/e ratio market fair with 2% long term bond yields), but rate levels is one factor that lead some to believe the market is fairly valued. I don't buy that it's cheap, though. <br /><br />This is not meaningful for most of us who think that interest rates can't stay down here for too much longer. <br /><br />But the other side of the normal scenario is the Japan scenario which is still possible. In that case, rates can stay a lot lower for a lot longer than people think. And it has sort of been that way. <br /><br />Of course, a lot of it is due to QE3, but if we are indeed overindebted and we can't expect higher growth, then interest rates may not go back up as much as we think even if QE3 goes away. <br /><br />In any case, I do read all the arguments about market valuation. It is interesting to me and I don't mean to say they are meaningless or anything like that. <br /><br />But you know, the folks who focus on that sort of thing and keep showing us those graphs and charts tend not to have any performance figures to show! I don't want to name any names, but you know those guys screaming and yelling on TV about this or that, about the debt, about the market, U.S. dollar and all that have done horribly over the years. (Of course, there are many great investors who complain about the same thing, but those guys tend to talk about the problems but have a different investment approach that allows them to make money regardless...) <br /><br />Anyway, thanks for reading. kkhttps://www.blogger.com/profile/06299974418283948333noreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-67945734708886388302013-09-30T13:15:14.957-04:002013-09-30T13:15:14.957-04:00A few random thoughts...
When you calculate the a...A few random thoughts...<br /><br />When you calculate the average (or median, the results are similar) CAPE between 1870 and 1982, say, you get a lower value. Around 14.5 if I remember correctly. Which would mean that the market is a bit more out of whack than it seems. Now why could this be ? One reason imo is that since 1982 we had kind of a goldilocks scenario for stocks. Interest rates were going down (from 15% to basically 0%) and total debt (financial debt plus household debt) was inceasing. Jim Reid from Deutsche had a nice chart showing GDP and total debt since WWII. What you could see is that those two grew in lockstep until the early 1980s, then debt went through the roof and it is still not back to trend yet (in his chart it was about halfway back but that has been a year or so ago, maybe even more). So it *might* be that an average / median CAPE around 16 is still a bit too high and we face more downside.<br /><br />I know that Marks says the market is fairly valued but I cannot follow his arguments. GMO and Hussman as a cross-check say that propective long-term returns are somewhere in the low single digits which is way too low imo. And there is Buffet in the back of my head saying that you cannot reasonably expect that profit margins stay way above 6% of GDP (which would be needed indefinitly to make todays TTM P/Es reasonable).<br /><br />I know you keep pounding the financial stocks and yes, I think some are still reasonably cheap or at least not on the expensive side (JPM, BAC). Bear in mind, however, that a lot of seemingly solid shops had near-death experiences in 2008/2009, so ordinary folks who have no inside knowledge of the financial industry might not touch them with a 10 foot pole (as a matter of fact I know a bunch of financial professionals who wouldn't do that). There *might* be still a lot of fear around which could be part of the reason why these babies are not overvalued yet. As for the more "productive" industries, I for myself struggle to find some good value at a reasonable price. But maybe it is just me.<br /><br />Fully agreed on market timing. I think it is difficult to impossible to pull this off in a consitent manner. Some guys in the high frequency space may be able to do so but even they are only right on average and have pretty large samples. Not what we low latency guys have.<br /><br />Cheers,<br />EddieAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-34735056474383909282013-09-28T18:00:37.971-04:002013-09-28T18:00:37.971-04:00Thanks. That's a good analysis. I guess we a...Thanks. That's a good analysis. I guess we are way above trend no matter how you slice it. I figured that since the trailing 12 month is also at 20x p/e (which excludes financial crisis losses and boom year profits; the last 12 months is a slow 2% growing economy so not boom or bust). <br /><br />But I sort of still don't get it cuz I find it hard to believe stocks I look at are 50% overvalued. As I said in one reponse above, financials are at book value and I don't think they are worth way less. Many blue chips are 15-20x p/e, and I don't see them necessarily as worth way less... <br /><br />So I would love to see the inside of all that and see which industries and companies are making these figures look like this. We know what skewed the p/e figures in 2000, but frankly I don't know what's making it so high now. <br /><br />Anyway, thanks for posting. We have to be mindful of all this stuff... kkhttps://www.blogger.com/profile/06299974418283948333noreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-59607479030248097582013-09-28T10:54:09.332-04:002013-09-28T10:54:09.332-04:00Ruben again. Good years offset the bad ones. Sorry...Ruben again. Good years offset the bad ones. Sorry :-(Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-4355690405255837162013-09-28T10:52:37.439-04:002013-09-28T10:52:37.439-04:00Great Post. I would add that most who are reading...Great Post. I would add that most who are reading this blog are reading it for stock/business/valuation insights. For us dyed in wool value investors, cash is usually a residual from lack of investing opportunities. I did take a big hit in 2008-2009, but the same portfolio more than tripled the SP500 return going forward. The take away for me was to always have some cash on hand. Kind of like Pabrai reserving his last 10-20% for potential 4-5X opportunities<br /><br />CRAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-52217065206063687102013-09-28T10:47:22.175-04:002013-09-28T10:47:22.175-04:00Hi. I’m Ruben from Spain. Sorry for my poor Englis...Hi. I’m Ruben from Spain. Sorry for my poor English. I agree with you that bottom-up is what really matters (at least, in the long run!). In talking about CAPE you say “it seems like the crisis blew away a lot more than was excessively made in the bubble years of 2005-2007”. But in fact, as Cliff Asness demonstrates, good years were far more than offset bad ones. <br /><br />(http://greenbackd.com/2013/04/01/aqrs-cliff-asness-on-an-old-friend-the-shiller-pe/).Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-32279359659971287482013-09-28T08:52:05.484-04:002013-09-28T08:52:05.484-04:00By the way, I didn't include it in the post bu...By the way, I didn't include it in the post but to illustrate the difficulty of timing the market even using valuation, I was going to point out the many calls in 1996-1997 that the markets were seriously overvalued. If you look at the CAPE 10, you will see that it went up to 24x back in 1996. This was around the time (maybe it was 97) that Greenspan made his irrational exuberance speech. If you sat out the market then because of that, you wouldn't have ever really gotten back in as the market has been expensive since then, pretty much. And since 1996, despite the internet bubble crash and the greatest financial crisis since the great depression, the market is still higher.<br /><br />So it's easy to look at these charts and say, gee, it's so simple. You can just buy stock here and sell it there... But in real time, it's really not so easy as it looks even if we do get some calls right now and then. <br /><br />I have made some great calls myself, but what I made or saved on those calls pales in comparison to how much I made by picking the right stocks! kkhttps://www.blogger.com/profile/06299974418283948333noreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-33692753347021932122013-09-28T08:43:06.427-04:002013-09-28T08:43:06.427-04:00Well, maybe I didn't phrase it right. What I ...Well, maybe I didn't phrase it right. What I meant is that if it's gonna freak you out when the market goes down 50% and you're going to panic and sell out, then you own too much stock. Buffett says that if it will upset you if a stock you own went down 50%, then you shouldn't own stocks as stocks will inevitably go down 50% at some point. <br /><br />This is not such a dumb rule as it applies in trading and poker too. If you are betting such large sums that a loss would be bother you too much, you won't be playing your best; you would be playing out of fear and nobody plays well like that. Same in trading. If you have a position on that's so big that you can't sleep at night, you are not going to make good decisions when the trade goes against you. <br /><br />So the rule is right. Maybe the way I wrote it was dumb! <br /><br />Anyway, thanks for reading and commenting. <br />kkhttps://www.blogger.com/profile/06299974418283948333noreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-24599890046486299372013-09-28T08:39:56.970-04:002013-09-28T08:39:56.970-04:00Good for you. I made some good moves to in the re...Good for you. I made some good moves to in the recent cycle. I don't know that picking tops and bottoms in the recent past is enough evidence that it is 'not difficult'. If you can do that consistently over ten or twenty years, you will do very well, but I happen to doubt it. I've seen people get a couple of turns right. Newsletters tend to be like that too. They can be hot and spot on for a few turns, but over time tend not to be so accurate. <br /><br />If market-timing is really not that difficult for you, hedge funds will pay serious money to you so you should send your calls to prominent hedge funds; if they notice you are right often enough you might get yourself a job! <br /><br />Anyway, thanks for reading and good luck!<br />kkhttps://www.blogger.com/profile/06299974418283948333noreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-53500239700634873822013-09-28T08:35:50.878-04:002013-09-28T08:35:50.878-04:00Yes, that's right. It is possible we are in a...Yes, that's right. It is possible we are in a 1966 - 1983 period but we really can't know for sure; that's the problem. After 1987, some very smart people were convinced that we were going to track 1929-1932. A lot of things were eerily similar and there were a lot of fundamental problems back then (twin deficits etc.). <br /><br />The year 2000 was even worse than any other period in terms of valuation but there was a lot of interesting stuff to do in stocks even since then (Buffett's new managers made their track records during this period). For indexers, yeah, it wasn't a great period since then but the point is that in order for someone to have realized the equity returns over the past 100 years or whatever, they would have had to endure the long flat periods that usually occur in the market. Of course if you knew when the markets would be flat and when there would be a bull market, then it is obviously better to get in and out, but the historical record seems to show that that is a hard thing to do (even if Buffett did it once). <br /><br />But yes, I agree it's a dangerous market, but trying to time is dangerous too! kkhttps://www.blogger.com/profile/06299974418283948333noreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-2003584872543816762013-09-27T22:12:00.157-04:002013-09-27T22:12:00.157-04:00>If your portfolio went down 50% tommorow and y...>If your portfolio went down 50% tommorow and you would be upset<br /><br />I keep hearing this rule and it is dumb. Of course I'd be upset if my stocks went down 50%, never mind my whole portfolio and so would you and so would anyone. I'd be upset if my wife cheated on me too, or if my dog peed on the carpet. The point is what do you do when things happen that you don't like. Kill your wife? If so, you go to jail or the electric chair, depending on jurisdiction. Hang your dog? If so, you might end up doing time Michael Vicks and also lose the respect of all your friends. When stocks go down, the rational thing is not to sell them but rather to BUY MORE. Same as if you bought tuna fish for $2/can because that seemed like a good price and then saw it on sale elsewhere for $1/can.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-41714585200007823572013-09-27T22:04:18.352-04:002013-09-27T22:04:18.352-04:00>But I think very few people actually were able...>But I think very few people actually were able to make money off the short, or even get in on the lows.<br /><br />I don't do short or leveraged long, because, as Buffett puts it: "You only need to get rich once, that's sort of obvious", with the implication that only a fool takes big risks once he's rich. However, I did get in on the lows several times recently. Like Buffett, I went from 100% short-term treasuries on Oct 9, 2008 to 100% stocks on Oct 10. Then I sold on the bounce and bought back again in Nov when the market crashed to 750 on the SP500 due to the Citibank scare, then popped the next day when the news hit that Citi was going to be bailed out. Then I sold out again on the hunch that the Obama inauguration bounce was going to be a flop instead, and bought starting at 750 as the market fell through Feb 2009. My average price was 730 by the time I hit 100%. Then I sold in April of the next year. I missed the summer 2010 crash because I got greedy and kept waiting for the SP500 to break 1000. Luckily, I was given another opportunity in Sep 2011 and I bought then at an average price of under 1100. I started selling when the market went over 1450 and am down to 20% stocks now (with the rest in intermediate-term bonds, I'm really happy with the munis I bought this summer, BTW). I'm expecting at least one more crash before when finish this long cycle of sideways movement that began in 1999, and I'll trade back to 100% stocks when that occurs. Market-timing is not that difficult. The key is that you have to sell when prices are good (like now) or you can't buy at the bottom. The reason there isn't a huge amount of buying at the bottom is not fear or incompetence (at least not with smart investors) but rather because they are already 100% stocks, or otherwise have liquidity issues.<br /><br />"Don't sell at the top, can't buy at the bottom" is the corollary to "Don't buy at the bottom, can't enjoy taking profits at the top".Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-30772440562531154752013-09-27T21:47:29.263-04:002013-09-27T21:47:29.263-04:00>So let's time-travel back to 1966 and talk...>So let's time-travel back to 1966 and talk to these guys and tell them that the market is overvalued. We will tell them that they should just do something else and start their investment careers in 1979 or 1982 when the stock market will be really cheap and even idiots will put up big numbers. Not! ... This is what the Superinvestors essay (written by Buffett in 1984 or so) is about. They just did their thing; value investing. <br /><br />Buffett himself closed his partnership to new money in 1966 and then liquidated the partnership entirely in 1969 because the market was too expensive then. Then he started buying again in 1970 after the market crashed. Good to see people thinking back to the 1960's, because that is what today's market is like. Not 1929, not 1999, but more like 1968 or 1973. Or 1967 or 1966 or whatever. Sure, if you're Walter J Schloss buying penny stocks that no one ever heard of but which happen to be diamonds in the rough, then it really doesn't matter what the broad market indexes do. But for those of us buying index funds and broadly diversified ETFs, this is a very dangerous market.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-30064799495908619322013-09-27T15:43:09.172-04:002013-09-27T15:43:09.172-04:00Yes, Buffett is not the only one. Howard Marks kee...Yes, Buffett is not the only one. Howard Marks keeps saying that too. Meryl Witmer said it too. As I said, if you look at forecast EPS, then it is reasonable-looking. <br /><br />This is the problem with these 'macro' figures. The CAPE 10 makes it look like the market is 50% overvalued, but for example, I really like JPM and they are trading near book value. I don't think JPM is only worth 66% of book value. I like other financials and I don't think any of them are only worth 0.66x where they are trading now. KO is 20x trailing p/e, and I don't think they are only worth 13x p/e. I think they are trading at 16x next year's earnings, and I don't think they are worth only 11x p/e. <br /><br />So this is the problem, as I mentioned when I looked at corporate profit margins in an old post a while back. <br /><br />This is why I wish we can see more of the inside of this 'macro' data; what sectors may be skewing the data? Where is the overvaluation specifically? etc... <br /><br />I guess it's another reason to 'ignore' these things... kkhttps://www.blogger.com/profile/06299974418283948333noreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-79222539285077028502013-09-27T15:38:05.403-04:002013-09-27T15:38:05.403-04:00I made some posts about Oaktree in the past so you...I made some posts about Oaktree in the past so you can see how I think about it. People seem to value the fee-related earnings stream at 15-16x p/e and then the incentive fee stream (net of bonuses) at 5x or some such. <br /><br />But these days if you look at the private equity managers' investor presentations, they are using a p/e multiple on economic net income and comparing that to the regular p/e ratio of traditional asset managers. I don't know how directly comparable that is as the p/e ratio is net of corporate tax but economic net income is pretax (some taxes paid, though) as it is a partnership and taxes must be paid by the LP unitholder on income whether it's distributed or not. But then you can argue that the p/e ratio of traditional managers are after corporate tax but if they paid all of that out as dividends the stockholder would have to pay tax on dividend income.<br /><br />In any case, it would be some multiple of economic net income; but be careful as Oaktree and others are realizing a lot of gains these days so profits booked in recent quarters may not be 'normal'.<br /><br />kkhttps://www.blogger.com/profile/06299974418283948333noreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-1897275323259527552013-09-27T15:33:24.667-04:002013-09-27T15:33:24.667-04:00Thanks for that. That's cool. It would be gr...Thanks for that. That's cool. It would be great if someone had that updated for all countries around the world like Shiller does for the U.S. Thanks for reading. kkhttps://www.blogger.com/profile/06299974418283948333noreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-23253048659708605822013-09-27T15:07:46.725-04:002013-09-27T15:07:46.725-04:00Great points.
However, it's curious that Buff...Great points.<br /><br />However, it's curious that Buffett himself earlier this week opined that the market although not cheap, is not overvalued either. And he has stated that several times this year. I wonder what it is that he is seeing that others aren't. Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-88292790061457737332013-09-27T14:47:50.837-04:002013-09-27T14:47:50.837-04:00What's the best way to value an alternative as...What's the best way to value an alternative asset manager like Oaktree? What are your thoughts on how rising rates will affect their business?Jamesnoreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-83690205033052310012013-09-27T14:20:10.777-04:002013-09-27T14:20:10.777-04:00have you seen the article in the JOI on creating g...have you seen the article in the JOI on creating global CAPEs for all the countries in the world?<br /><br />http://www.indexuniverse.com/publications/journalofindexes/joi-articles/16017-global-value.html?showall=&fullart=1&start=8Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-35462123651107296312013-09-27T11:08:56.620-04:002013-09-27T11:08:56.620-04:00Ah, but only partially. Bogle doesn't think p...Ah, but only partially. Bogle doesn't think people can beat the market but the Superinvestors of G&D prove that they can. But yes, indexing as Bogle says is better than buying and selling the market according to scary looking charts, tables and things like that... kkhttps://www.blogger.com/profile/06299974418283948333noreply@blogger.com