After some thought, I’ve decided to exit most of my stock positions in the USA except for one relatively small and extremely unpopular company that appears to be deeply undervalued.
You're ignoring the improbability of raising rates (https://www.nzscapital.com/news/the-improbability-of-rising-rates). With 3% 10y government bond, a 4.2% ERP (the LT average according to Aswath) and a mere perpetual 2% growth, a nineteen times earnings multiple is perfectly well warranted. You're likely to make a low single digit return on your cash (at best, rates these days have this characteristic of being set to 0) versus making 6-7% return buyin business américa.
I like this website (https://www.currentmarketvaluation.com/). The market remained above average for 20 years between 1955 and 1975 according with their heuristic.
Hi Matheus - thanks for reading and for the comment / links. I don’t disagree with the notion that rates may be (eventually) be lower. But I don’t think this necessarily justifies current valuations.
Hussman talks at length about this, and about “normal” PE ratios, in the blog post linked to in the first link above. He also talks about expected returns given current levels of valuation using historically reliable measures. He may be wrong, but his data and logic seem pretty compelling to me. I’m not a macro guy (and I’m probably erring by attempting to make a market call!), but most of the individual companies I look at seem to line up with his sentiment of overvaluation. Would be interested in hearing what you think of his work!
You're ignoring the improbability of raising rates (https://www.nzscapital.com/news/the-improbability-of-rising-rates). With 3% 10y government bond, a 4.2% ERP (the LT average according to Aswath) and a mere perpetual 2% growth, a nineteen times earnings multiple is perfectly well warranted. You're likely to make a low single digit return on your cash (at best, rates these days have this characteristic of being set to 0) versus making 6-7% return buyin business américa.
I like this website (https://www.currentmarketvaluation.com/). The market remained above average for 20 years between 1955 and 1975 according with their heuristic.
Hi Matheus - thanks for reading and for the comment / links. I don’t disagree with the notion that rates may be (eventually) be lower. But I don’t think this necessarily justifies current valuations.
Hussman talks at length about this, and about “normal” PE ratios, in the blog post linked to in the first link above. He also talks about expected returns given current levels of valuation using historically reliable measures. He may be wrong, but his data and logic seem pretty compelling to me. I’m not a macro guy (and I’m probably erring by attempting to make a market call!), but most of the individual companies I look at seem to line up with his sentiment of overvaluation. Would be interested in hearing what you think of his work!