So, (the sentence starts with "so" because this is a sort of ongoing discussion that's been going on here for years) I've been thinking about the overall market again. Despite my telling people to ignore this and ignore that, I can't help it; sometimes I think about this stuff. Well, it's OK to think about it as long as it doesn't lead to irrational decisions.
Anyway, as usual, there is a lot of talk of the market being insanely
overvalued, median P/E's at post war records and all the usual.
I look at the charts and some are scary, but I still don't get the sense
of a bubble. I've seen the Japan bubble in 1989, the 2000 internet
bubble and some others. I see the Chinese bubble going on right now.
But I still don't really get the sense that the U.S. stock market is in
a bubble. Yes, there is a pocket of bubbliness, like in some parts of
the tech sector (social networks, biotech etc.), but overall I just
really don't see it.
I made a post just like this one two or threes years ago when people
were saying the market is overvalued. I looked up the P/E ratios of the
Nifty Fifty stocks in 1972 to see what a real bubble looks like.
What is really interesting to me here is that the S&P 500 index P/E
ratio at the time was 19.2x. But look at the nifty fifty P/E ratios.
To me, this is what a bubble looks like. These 'ordinary' companies
were trading at higher P/E's than high growth social network stocks or
fast casual restaurant chain today!
People say that the market is tremendously overvalued. Is the market so
overvalued that I would be comfortable with a massive short position?
I just imagine myself with a big short position to see how I would
feel. What do I need to make money? What can go wrong? Is there
really a big margin of safety in terms of valuation; are things so
overvalued that it's a no brainer to be short? At this point, I would
not be comfortable short at all. Sure, earnings for everyone might
be bloated due to QE-infinity and budget deficits. There are other
reasons to be bearish, but I just don't see it from a valuation point of
view. The market is certainly not cheap. But it's not so expensive
that it's a no-brainer short either.
I've been saying this sort of thing since 2011 when I first started this
blog; that the market is fine. But sooner or later the bull market
will end. The market will tank and people will go back and read these
posts and have a good laugh. I know that will happen for sure. But
I'm not trying to predict anything, nor am I saying that we won't have
another bear market again. The market will go down for sure, 50% or
more. There is no doubt about that at all. But I don't know when that
-- The Brooklyn Investor, June 16, 2015
Blodgett says market is more expensive than 2000 and sees a decade or more of lousy returns. [via chucks_angels]