Fundamental market valuations / What should I care about?

[stevesteve]

I recently read an article about which talks about some 'fundamental market valuations'.  It talks about price-earnings ratio being high now.  It talks about dividend yields being low.  Etc.  It uses all of these to justify the proposition they we are (or should be) in a downward market.

I was curious what you MMM folks think about this.  My initial thought is that there has been some pretty great growth over a time he's saying has been inflated.  One of the reasons we invest in index funds is to avoid guessing how current P/E, dividend ratios will affect returns individual stocks.  It makes me curious what, if anything, I should make of these broader (S&P 500) market indicators.

[tylerherman]

Yes dividends are low and P/Es are high but there really isn't any alternatives. Bonds?

I invest the same amount each month regardless so I'm not that worried about it in the long run but in the short don't expect the Ups to last forever. For those of use a long ways off FI a recession is exactly what we need, more cheap stock FTW.

[Khan]

That's great and all, but riddle me this, when will the next crash happen? Don't know? How about this one: How much longer will stocks go up for, how much more of a bull market do we have? Still don't know?

Then my thoughts are this: Purchase the stock of good companies, attempting to find the better deals w/r/t P/E or P/B(INTC is only now moving from 10x P/E to ~12, and still yields 3.6%, and still Wall St. is pessimistic about it, and it's not the only company out there) and if there should be a crash, which is never just brought about by itself(probably be Europe or Japan), then I'll keep investing.

In short: Market timing is bunk.

[stevesteve]

So, basically the answer is even if it does indicate things are "overvalued" your only options are 1) wait until the next crash to buy which is a bad idea since it's not something you can predict/time or 2) never invest because you think it will never return its investment which the history of stocks and profits of companies makes rather unlikely?

Thanks!

[arebelspy]

So, basically the answer is even if it does indicate things are "overvalued" your only options are 1) wait until the next crash to buy which is a bad idea since it's not something you can predict/time or 2) never invest because you think it will never return its investment which the history of stocks and profits of companies makes rather unlikely?

Thanks!

3) Keep buying steadily over time.

That's the only way to win.

[meadpointofview]

Buying steadily over time is NOT the only way to win. 

Case in point - Prior to crash in 2001 I cashed out and moved to money market then in 2008 I got back in the market after the crash and then sold it all again midway through 2010.  I kept the gains and avoided the losses.

See Ford stock prices at low in 2008 and high in 2010.

Market timing can work but it is hard work and you need to stay informed and unemotional.

[matchewed]

Buying steadily over time is NOT the only way to win. 

Case in point - Prior to crash in 2001 I cashed out and moved to money market then in 2008 I got back in the market after the crash and then sold it all again midway through 2010.  I kept the gains and avoided the losses.

See Ford stock prices at low in 2008 and high in 2010.

Market timing can work but it is hard work and you need to stay informed and unemotional.

Anecdote vs data. I'm glad that worked for you. But most of the investing data out there points out that market timing is either a blind luck scenario, or all those successful market timers have access to some information the rest of us do not.

You can look at any stock backwards and pick a time frame, but tell me which stocks are at their low right now and when will they be high again?

[meadpointofview]

My point is that no one can say there is only 1 way. 

[matchewed]

And my point is if you're going to take that stance back it up with something a bit stronger than happened to me once over a small time frame and look at Ford over a small time frame. If market valuations are so good then why aren't more people successful with it? It can't be because it is hard and emotions or there would be a computer program which anyone could use which would make us all crazy rich.

[meadpointofview]

It was an example.  I am not going to detail my entire strategy and all of my investments.

[matchewed]

Fair enough then don't be surprised when people write off market valuation as akin to voodoo or tarot card reading and advise DCA as it is a proven track record that doesn't require the hand waving and secrecy of market valuation.

[arebelspy]

You're right.  My bad.

Luck is another way to win.

Replace my "only way to win" with "only reliable way to win".

[aclarridge]

You're right.  My bad.

Luck is another way to win.

Replace my "only way to win" with "only reliable way to win".

Ooooh thems fightin' words!

[arebelspy]

Apparently the person posting, meadpointofview, deleted their account? 

Maybe they will come back, ala smedley...  Hope so.

[matchewed]

Well that sucks. I don't mean to come off all pitchfork and torches, maybe sporks and sparklers, but I'm not trying to drive out dissenting opinion. I just want to know what backs up that opinion.

[arebelspy]

Well that sucks. I don't mean to come off all pitchfork and torches, maybe sporks and sparklers, but I'm not trying to drive out dissenting opinion. I just want to know what backs up that opinion.

I don't think anything you said was enough to warrant quitting a forum over, so if someone doesn't want to engage in a discussion of their investment philosophies, that's up to them.  I wouldn't take it personally.

All views are welcome, one has to understand though that if they hold a nonconventional one they may be asked to explain or defend it.

[Joet]

I know this is un-conventional but the only good example I have is .bomb

My best friends Grandma sat me down (nurse? Lol) and explained to me in intricate detail with charts and graphs the retardedness present in Nasdaq at that point (1999) and how the only prudent path based on long term valuation trends was to run for the exits. My counter arguments are the ones you'll always hear: markets stay unreasonable longer than you can stay solvent... It's different this time (my favorite), valuations are different now... Price to eyeballs, price per click, etc are all the new rage (you just don't undestand it)

So I don't know. I'm not a market timer but I'm also somewhat turning an ear to the value side and people like my friends mom and all the bajillion analysts that just new the valuations in the market were clearly irrational (12 years later, Nasdaq is still down 60% lol)

So I'm not saying this is terribly actionable and most likely will never be. But if ya'll start looking like the .bomb era again I'm taking some chips off the table.

Problem with that though is assets tend to bubble together. Le-sigh

[matchewed]

With out a doubt there will be bubbles. But there is no metric I'm aware of which can tell you when it will pop. So the moment you perceive one developing or on the other side after the pop when does one know the bottom. I think any reasonable investor would admit you can't know that. Given that you can't know that, DCA provides the best strategy.

No one is saying the markets won't rise and fall, or that there won't be the few lucky investors who try and do catch that opportunity accidentally. But luck doesn't equal success.