Despite hovering around record highs, stocks are "cheap on stock valuations alone," said billionaire buy-and-hold investor Ron Baron in a CNBC interview on Friday from his annual investment conference in New York City.
To make his case, Baron provided a history
lesson: "From 1999 to now, companies' earnings have about doubled. And
the stock market is up 20 or 30 percent. From 2007, it's up maybe 10
percent. People say how much it's up, but it's only up from where it
As for valuations, he said on Squawk Box
that at the height of the Internet bubble "in 1999 the stock market was
selling for 33 times earnings." Stocks are now selling for around 14
times, he said. "They're cheap on stock valuations alone." [well cheaper than 1999 anyway]
*** [11/23/13 from the December Profitable Investing]
Objective signs of an overvalued market have been with us for some time. On a number of occasions, I’ve called your attention to the Cyclically Adjusted Price–Earnings (CAPE) ratio, devised by Prof. Robert Shiller of Yale. To smooth out the sharp earnings fluctuations that occur around recessions, the CAPE ratio takes 10 years of corporate profits and adjusts them for inflation.
As you can see from the chart, the Shiller P/E now stands at more than 24X. Since 1881, this benchmark has averaged 16.5X. Merely to return to fair value, the S&P 500 index would have to drop approximately 32%, to around 1200. An undervalued reading, at 12X, would take the S&P down to less than 900 (from a recent high of 1798).
While I don’t expect to see either 900 or 1200 in the near future, the increasingly noisy “bubble babble” among institutional investors tells us something. Many influential members of the Big Money herd are already nervously pawing the ground. Sooner or later, some incident, perhaps quite minor in itself, will arouse a critical mass of fear among the leading animals. A selling stampede will result.