randomep Posted January 6, 2014 Share Posted January 6, 2014 Agreed, to each there own. For me, I know I've wasted a lot of time and effort on worrying about large downdraft amidst a supposedly overvalued market. As such, I'd like to not spend the rest of my career worried about the market when I do not need to be worried. Buffett spent his entire hedge fund career worried about an overvalued market - just read his partnership letters. And look at the not-so-insignificant amount of ink graham spilled in trying to divine the fair value of the market. So yes - I would like to have my cake and eat it too via finding a method in which I can avoid largely being on the wrong side of the market, up and down, while being able to devout 99% of my time on figuring out SHLD and Fiat! Just take Sanjeev this year - Sanjeev has been what sounds like 30% cash since SPX 1500, and even if we get a 20% correction he will have only broken even. Think about the gains in BAC he missed out on by holding that cash, or best buy for that matter. All that great analysis for nothing while waiting for a correction. Buffett got his results precisely because of all that he does, including worrying about the market. It is all part of investing I feel. I do agree with your point that an extremely large cash position is counter-productive. All great investors from Graham, Buffett to value managers vary their cash position from 0 to 30%. But when you get above 30% that is market timing. At the extreme suppose you are all in cash. What if the market stays flat or grows ever so slightly, but it never drops below the current valuation? Then you will never be in the market! Link to comment Share on other sites More sharing options...
petec Posted January 6, 2014 Share Posted January 6, 2014 i think the huge supply of cheap/plentiful labor on the world stage cannot be ignore (china, india, southeast asia etc.). it is a major contributor to the stagnate wage in the US and a positive to corporate profit. Why would it be a positive to corporate profit? It implies lower costs but it also implies lower buying power. And anyway, in a competitive environment lower costs ought to get passed on. Link to comment Share on other sites More sharing options...
giofranchi Posted January 6, 2014 Share Posted January 6, 2014 Agreed, to each there own. For me, I know I've wasted a lot of time and effort on worrying about large downdraft amidst a supposedly overvalued market. As such, I'd like to not spend the rest of my career worried about the market when I do not need to be worried. Buffett spent his entire hedge fund career worried about an overvalued market - just read his partnership letters. And look at the not-so-insignificant amount of ink graham spilled in trying to divine the fair value of the market. So yes - I would like to have my cake and eat it too via finding a method in which I can avoid largely being on the wrong side of the market, up and down, while being able to devout 99% of my time on figuring out SHLD and Fiat! Just take Sanjeev this year - Sanjeev has been what sounds like 30% cash since SPX 1500, and even if we get a 20% correction he will have only broken even. Think about the gains in BAC he missed out on by holding that cash, or best buy for that matter. All that great analysis for nothing while waiting for a correction. bmichaud, I don’t think things are black or white, like you described in your post. I think, like Mr. Marks says, The best people in the world are the ones who can visualize a distribution of all possible things that could happen. Things are made of many shades of gray. An overvalued market simply tells you that other people are behaving without prudence… and therefore you want to apply prudence in your own dealings… that’s all! No one ever says “refrain from doing business”. I am always in the game. But I have devised my game so that it does not only depend on equity investing. For instance, I have businesses that I control and manage day after day: if I think people are behaving recklessly in the market, I am able to shift my attention to those businesses I control, and to try to maximize their earnings. I am absolutely not out of business, it is just another kind of business, one that better suits the present situation. You better make sure you are not the proverbial “man with one hammer”, because otherwise it is extremely difficult to see all the different shades of gray… If your net worth only depends on stock market investing, it is almost impossible to be conservative at the peak of the market, as it is to be very aggressive at the bottom… But just try to have means to make money which don’t depend on the stock market, and everything radically changes: because at the top of the market you make a lot of money anyway… who cares if you leave some percentage points on the table? At the bottom of the market, instead, you can invest freely, because you know you will always have new cash to average down, should the market continue its slide, and therefore you don’t mind the waiting. You should really try this. Because I know that, as much as I talk and try to explain, if one doesn’t experience the feeling of freedom and the opening of opportunities a continuous stream of new cash really affords, one cannot fully grasp it… Gio Link to comment Share on other sites More sharing options...
bmichaud Posted January 6, 2014 Author Share Posted January 6, 2014 Gio, That's precisely why I envy Buffett's current model - he has a natural on-going hedge that allows him to either continue to invest in attractive equities or build cash for a rainy day. He has the best of both worlds, as the continuing stream of cash allows him to never sell his wonderful businesses! Link to comment Share on other sites More sharing options...
giofranchi Posted January 6, 2014 Share Posted January 6, 2014 Gio, That's precisely why I envy Buffett's current model - he has a natural on-going hedge that allows him to either continue to invest in attractive equities or build cash for a rainy day. He has the best of both worlds, as the continuing stream of cash allows him to never sell his wonderful businesses! Well, but you surely don’t have to be Mr. Buffett to do something similar… I am Mr. Nobody, yet in my minuscule world I think I also enjoy some of that freedom… ;) Gio Link to comment Share on other sites More sharing options...
bmichaud Posted January 14, 2014 Author Share Posted January 14, 2014 http://pragcap.com/the-coming-market-meltup-and-2016-recession Great article Link to comment Share on other sites More sharing options...
wisdom Posted January 19, 2014 Share Posted January 19, 2014 bullish part 1 http://wealthtrack.com/recent-programs/ed-hyman-bill-miller-investment-legends-predictions-2014/ part 2 http://wealthtrack.com/recent-programs/ed-hyman-bill-miller-part-ii-investment-legends-predictions-2014/ Link to comment Share on other sites More sharing options...
randomep Posted January 19, 2014 Share Posted January 19, 2014 bullish part 1 http://wealthtrack.com/recent-programs/ed-hyman-bill-miller-investment-legends-predictions-2014/ part 2 http://wealthtrack.com/recent-programs/ed-hyman-bill-miller-part-ii-investment-legends-predictions-2014/ Ya I saw that, the bullishness was over the top! Bill Miller was saying earnings could keep growing 7% and we can see an earnings expansion to 20-25. If that is true, we are all rich! Ya some people are always one step behind the market. Like I saw Henry Blodgett on Daily ticker 2009-2010 saying the market doesn't have the legs to recover. He was wrong, for the 2nd time. The first time being the market shill in the 90s. Thought leaders are refreshing..... Link to comment Share on other sites More sharing options...
dpetrescu Posted January 20, 2014 Share Posted January 20, 2014 This is an interesting discussion. But I'm not clear if the question is 1) will the market keep going up in the near future or 2) is the market right now overvalued. These are two very different questions. I'm more interested in #2. In 97 the market was overvalued and it kept going up. I think it's good to revisit Buffet's end of 2001 article. http://money.cnn.com/magazines/fortune/fortune_archive/2001/12/10/314691/ -market value to GNP is best indicator he knew in early 2000 (GNP includes non domestic products by us ownership) -stocks are really "disguised" bonds with profits and dividends being the coupon, price/book value of 1 being par. - interest rates and direction of rates impact value (discounting) -attractiveness of stocks can be compared to other investments as Dow earnings/average book value -it doesn't make sense for market valuation to increase too much out of proportion relative to GDP -The conclusion was that at end of 2001 after a sell off with a market value/GNP of 133 he was expecting about 7% return for the next decade. My take is that market is not over or underpriced (willing to change given more convincing arguments) 1. Market value/GNP is currently 115. While not the screaming buy of 70 or 80, it is not a clear overvaluation/ bubble territory. This is lower than the 133 at end of 2001 when buffet estimated 7% return. 2. What is throwing everything off is the unusually low rates. Although artificial, this has the effect of making the disguised bonds a lot more valuable than the exposed bonds with no shorts at the beach 3. Still, I am worried about record high margins that are unsustainable 4. There is on average a recession every 7 years. So any rational person should not be surprised if there is a recession (and market decline) in the next 5 or so years. "For investors to gain wealth at a rate that exceeds the growth of U.S. business, the percentage relationship line on the chart must keep going up and up. If GNP is going to grow 5% a year and you want market values to go up 10%, then you need to have the line go straight off the top of the chart. That won't happen. For me, the message of that chart is this: If the percentage relationship falls to the 70% or 80% area, buying stocks is likely to work very well for you. If the ratio approaches 200%--as it did in 1999 and a part of 2000--you are playing with fire. As you can see, the ratio was recently 133%." Link to comment Share on other sites More sharing options...
randomep Posted January 20, 2014 Share Posted January 20, 2014 This is an interesting discussion. But I'm not clear if the question is 1) will the market keep going up in the near future or 2) is the market right now overvalued. These are two very different questions. I'm more interested in #2. In 97 the market was overvalued and it kept going up. I think it's good to revisit Buffet's end of 2001 article. http://money.cnn.com/magazines/fortune/fortune_archive/2001/12/10/314691/ -market value to GNP is best indicator he knew in early 2000 (GNP includes non domestic products by us ownership) -stocks are really "disguised" bonds with profits and dividends being the coupon, price/book value of 1 being par. - interest rates and direction of rates impact value (discounting) -attractiveness of stocks can be compared to other investments as Dow earnings/average book value -it doesn't make sense for market valuation to increase too much out of proportion relative to GDP -The conclusion was that at end of 2001 after a sell off with a market value/GNP of 133 he was expecting about 7% return for the next decade. My take is that market is not over or underpriced (willing to change given more convincing arguments) 1. Market value/GNP is currently 115. While not the screaming buy of 70 or 80, it is not a clear overvaluation/ bubble territory. This is lower than the 133 at end of 2001 when buffet estimated 7% return. 2. What is throwing everything off is the unusually low rates. Although artificial, this has the effect of making the disguised bonds a lot more valuable than the exposed bonds with no shorts at the beach 3. Still, I am worried about record high margins that are unsustainable 4. There is on average a recession every 7 years. So any rational person should not be surprised if there is a recession (and market decline) in the next 5 or so years. "For investors to gain wealth at a rate that exceeds the growth of U.S. business, the percentage relationship line on the chart must keep going up and up. If GNP is going to grow 5% a year and you want market values to go up 10%, then you need to have the line go straight off the top of the chart. That won't happen. For me, the message of that chart is this: If the percentage relationship falls to the 70% or 80% area, buying stocks is likely to work very well for you. If the ratio approaches 200%--as it did in 1999 and a part of 2000--you are playing with fire. As you can see, the ratio was recently 133%." Well, good comments and a few counter-points. The issue of market overvalue/undervalue is a result of the PE multiple expansion. If you buy that over time multiples will expand then the market is not necessarily overvalued. Many cling to the notion of reversion to the mean (think Grantham) But I am starting to think PE's will very slowly expand. I just read somewhere that in the 1850's 50% of the railroad bond's defaulted. You wouldn't have that today for corporate bonds. So in a way maybe the world markets are a bit more efficient. I mean we can still have huge volatility, but the underlying trend is a slow multiple expansion. If not then Shiller's CAPE says our S&P500 should be at 1000. The other point about market growth above GNP, I think is an incorrect argument. What matters is shareholder returns. The total market cap may grow the same as GNP but shareholder returns may grow faster than GNP. How can this happen? Companies can give shareholders returns by 1) dividends and 2) share buybacks, both of which do not increase a nations overall market cap. Link to comment Share on other sites More sharing options...
stahleyp Posted January 20, 2014 Share Posted January 20, 2014 bullish part 1 http://wealthtrack.com/recent-programs/ed-hyman-bill-miller-investment-legends-predictions-2014/ part 2 http://wealthtrack.com/recent-programs/ed-hyman-bill-miller-part-ii-investment-legends-predictions-2014/ Ya I saw that, the bullishness was over the top! Bill Miller was saying earnings could keep growing 7% and we can see an earnings expansion to 20-25. If that is true, we are all rich! Ya some people are always one step behind the market. Like I saw Henry Blodgett on Daily ticker 2009-2010 saying the market doesn't have the legs to recover. He was wrong, for the 2nd time. The first time being the market shill in the 90s. Thought leaders are refreshing..... LMOPX was down over 65% in 2008 and another almost 35% in 2011. According to morningstar, he has trailed his peers (mid cap value) by almost 50% since inception. LMVTX also has exactly been a great one either...he no longer even manages that one. Link to comment Share on other sites More sharing options...
randomep Posted January 21, 2014 Share Posted January 21, 2014 bullish part 1 http://wealthtrack.com/recent-programs/ed-hyman-bill-miller-investment-legends-predictions-2014/ part 2 http://wealthtrack.com/recent-programs/ed-hyman-bill-miller-part-ii-investment-legends-predictions-2014/ Ya I saw that, the bullishness was over the top! Bill Miller was saying earnings could keep growing 7% and we can see an earnings expansion to 20-25. If that is true, we are all rich! Ya some people are always one step behind the market. Like I saw Henry Blodgett on Daily ticker 2009-2010 saying the market doesn't have the legs to recover. He was wrong, for the 2nd time. The first time being the market shill in the 90s. Thought leaders are refreshing..... LMOPX was down over 65% in 2008 and another almost 35% in 2011. According to morningstar, he has trailed his peers (mid cap value) by almost 50% since inception. LMVTX also has exactly been a great one either...he no longer even manages that one. holy sh**t, I didn't realize LMOPX was that lousy, on wealthtrack they said he returned 30+% in 2012 and 60+ in 2013, they conveniently omitted 2008-2011...... Bill Miller is famous for overshooting in good years and underperforming in bad years, that is not a recipe for long term success! Incidentally I'd say the same for Pabrai and many many hedge funds that started in the good years around 2003..... Link to comment Share on other sites More sharing options...
luck Posted January 21, 2014 Share Posted January 21, 2014 bill miller's performance numbers are definitely all over the place. that said, i think ed hyman's calls have been pretty good across time (30+ years). Link to comment Share on other sites More sharing options...
Packer16 Posted January 21, 2014 Share Posted January 21, 2014 Their comments are interesting as they see a possibility of the market going further up as from 1996 to 2000. This may be the case as the credit cycle is not fully engaged and there is alot of institutional money on the sidelines. I still think caution is required as Howard Marks has said move forward but with caution (maybe focusing on niches and delevering any levered positions). Packer Link to comment Share on other sites More sharing options...
stahleyp Posted January 21, 2014 Share Posted January 21, 2014 Their comments are interesting as they see a possibility of the market going further up as from 1996 to 2000. This may be the case as the credit cycle is not fully engaged and there is alot of institutional money on the sidelines. I still think caution is required as Howard Marks has said move forward but with caution (maybe focusing on niches and delevering any levered positions). Packer I'd rather have this guy manage my money than bill miller. ;) Link to comment Share on other sites More sharing options...
bmichaud Posted March 28, 2014 Author Share Posted March 28, 2014 Interesting article on deteriorating market breadth: http://www.seeitmarket.com/why-pullback-better-worse-than-seems-16039/ Perhaps it's a TWA-style buy-short-term-puts-in-May kind of year 8) Link to comment Share on other sites More sharing options...
meiroy Posted March 28, 2014 Share Posted March 28, 2014 It's a bull market. The US economy will do good this year (and the hell with everything else). Leverage up and I'm all in. Link to comment Share on other sites More sharing options...
matjone Posted March 28, 2014 Share Posted March 28, 2014 Should the fair market cap/GNP ratio be adjusted account for the balance sheet strength of the companies? If U.S. companies have a lot of cash and no debt then should they get a higher multiple than if the reverse were true? Link to comment Share on other sites More sharing options...
fareastwarriors Posted March 28, 2014 Share Posted March 28, 2014 Their comments are interesting as they see a possibility of the market going further up as from 1996 to 2000. This may be the case as the credit cycle is not fully engaged and there is alot of institutional money on the sidelines. I still think caution is required as Howard Marks has said move forward but with caution (maybe focusing on niches and delevering any levered positions). Packer I'd rather have this guy manage my money than bill miller. ;) +1 Link to comment Share on other sites More sharing options...
bmichaud Posted March 22, 2015 Author Share Posted March 22, 2015 Haven't been on in awhile. Curious what updated thoughts are on this bull market, so I reset the poll to '0'. Market is up 25% ex. dividends since the original poll; valuations at near-record highs; global bond yields screaming deflation; very few distressed value-oriented assets lying around...my guess is cash balances are climbing if not already high :) Link to comment Share on other sites More sharing options...
berkshire101 Posted March 23, 2015 Share Posted March 23, 2015 I say we go higher from here. Everything is mostly priced in with the exception of a blacks swan event. Then we crash 40-50% and the cycle continues :) Link to comment Share on other sites More sharing options...
petec Posted March 25, 2015 Share Posted March 25, 2015 But I am starting to think PE's will very slowly expand. I just read somewhere that in the 1850's 50% of the railroad bond's defaulted. You wouldn't have that today for corporate bonds. Could you expand on this? I would argue that if it were not for QE you would still get mass corporate bond defaults in overbuilt industries (like rails were in the 1850's); that keeping zombie companies alive is a big misallocation of capital; that growth will therefore be slower than it has been in the past; and that multiples if anything ought to be lower. Interested in your thinking. Link to comment Share on other sites More sharing options...
ni-co Posted March 25, 2015 Share Posted March 25, 2015 Stock prices have reached what looks like a permanently high plateau. Link to comment Share on other sites More sharing options...
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