Stock Valuations
- FrugalFran
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Replied by FrugalFran on topic Stock Valuations
I'm not as articulate about these matters as some of our other members here, but I will say that I am avoiding buying stocks right now because of everything mentioned here. If I was heavily invested before this, I'd probably be considering selling and waiting for the inevitable low to come before buying again.
7 years 11 months ago
#16
- Finance Globe
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Stock Valuations was created by Finance Globe
The market has had the strongest bull run in history, and now, sitting at all time highs one has to wonder - are stocks worth buying now? Most writers will post info after a bubble has burst, and stocks are becoming to look attractive. This is not advice, but this is what is on my mind, with history as a guide.
My father used to tell me: "buy low, sell high, don't be greedy and never chase stocks". He was wrong for this market since it was built up by low interest rates that encourage investing in the markets and borrowing. Thank the FED for that. However, in a "normal" market - this is good advice.
The big question is, how do you think new or existing investments in the market will fare in 1, 2, 5 and 10 years from now? The FED will announce a rate hike decision Tuesday and bond yields have been rising over the past few months in anticipation. Mr. Market seems like it does not care.
P/E ratios (Price to Earnings), what you pay for stocks are already very high . My understanding is that the reason these ratios aren't extremely higher than they are now, is because of company buybacks , reducing the P/E ratio and increasing EPS (earnings per share). However, when rates rise - companies need cash and will start selling shares to raise capital. This scenario will likely cause current conditions to be extremely overvalued.
Since the Britain exit from the Eurozone, AKA "Brexit", we've had 3 wild swings. 1. Brexit 2. Trump win, 3. Italian referendum. Yet the market has resulted higher in spite of this, attempting people to believe that these are good things. The truth is, these events will likely cause more uncertainty, volatility and de-stabilization to the markets. Depending on how you look at it, these may be better for people, but not for market valuations.
This is where the market sits right now:
S&P 500: 2251.25
Dow: 19,667
Nasdaq: 5,440
Let's re-visit this topic in a year, 2 years, 5 and 10 - then we will see the end of the story. If your house price tripled in 8 years, would you sell or buy another one? We have to remind ourselves to use good sense and don't be greedy. Use good times to your advantage, not to excess.
Remember that all good things come to an end, when there's a bull market - a bust almost always follows. The environment of easy money and investing will be a cycle that will end as well. When it does, I don't think it will be a good outcome for people still invested.
My father used to tell me: "buy low, sell high, don't be greedy and never chase stocks". He was wrong for this market since it was built up by low interest rates that encourage investing in the markets and borrowing. Thank the FED for that. However, in a "normal" market - this is good advice.
The big question is, how do you think new or existing investments in the market will fare in 1, 2, 5 and 10 years from now? The FED will announce a rate hike decision Tuesday and bond yields have been rising over the past few months in anticipation. Mr. Market seems like it does not care.
P/E ratios (Price to Earnings), what you pay for stocks are already very high . My understanding is that the reason these ratios aren't extremely higher than they are now, is because of company buybacks , reducing the P/E ratio and increasing EPS (earnings per share). However, when rates rise - companies need cash and will start selling shares to raise capital. This scenario will likely cause current conditions to be extremely overvalued.
Since the Britain exit from the Eurozone, AKA "Brexit", we've had 3 wild swings. 1. Brexit 2. Trump win, 3. Italian referendum. Yet the market has resulted higher in spite of this, attempting people to believe that these are good things. The truth is, these events will likely cause more uncertainty, volatility and de-stabilization to the markets. Depending on how you look at it, these may be better for people, but not for market valuations.
This is where the market sits right now:
S&P 500: 2251.25
Dow: 19,667
Nasdaq: 5,440
Let's re-visit this topic in a year, 2 years, 5 and 10 - then we will see the end of the story. If your house price tripled in 8 years, would you sell or buy another one? We have to remind ourselves to use good sense and don't be greedy. Use good times to your advantage, not to excess.
Remember that all good things come to an end, when there's a bull market - a bust almost always follows. The environment of easy money and investing will be a cycle that will end as well. When it does, I don't think it will be a good outcome for people still invested.
