Stocks have done well and are
at rich valuations not because they are appropriately priced, not because they deserve these valuations, but rather because investors have been in a speculative mood.
Not exact matches
After pricing its IPO
at $ 17 a share, the owner of the popular disappearing - message app has a market value of roughly $ 24 billion, more than double the size of rival Twitter (twtr) and the
richest valuation in a U.S. tech IPO since Facebook (fb) five years ago.
That means that Snap stock will be insanely expensive:
At a $ 24 billion
valuation, Snap shares will have a price - to - sales ratio of 59, making it far
richer than Facebook stock and other social media companies — and likely the most expensive tech IPO ever.
There's no question that it today's
valuation — if you look
at the S&P overall, forward PE's are about 18.5, the long - term average is more like 15.5 — you could say that it looks a little bit
rich.
Based on a market
valuation of US$ 50 to US$ 104 billion (
at the high end), check out how
rich Mark Zuckerberg, Bono and others will be when Facebook hits the open market.
The blistering consensus: that in shopping itself
at far too
rich a
valuation and pretending to be more than it was, Wired Ventures fell victim to its own greed and famous arrogance.
Given that
valuations were already
rich when the VIX, a commonly used measure of S&P 500 volatility, was
at 10, a doubling of volatility suggests stocks should be trading closer to 16 or 17 times earnings, not 21.
Our friends
at Wealth - X, a firm that does research and net - worth
valuations on ultra-high net worth individuals, compiled a list of the
richest people in the world under 35.
As I emphasized last week, even if we had no concern
at all about a second wave of credit strains, we would still be fully hedged here based on the present combination of
rich valuations, overbought conditions, overbullish sentiment, and hostile yield pressures.
At the surface, when we look at valuation measures and other fundamentals and compare them to historical precedents, there is a case to be made that stocks (in particular in the US) are above fair value, if not ric
At the surface, when we look
at valuation measures and other fundamentals and compare them to historical precedents, there is a case to be made that stocks (in particular in the US) are above fair value, if not ric
at valuation measures and other fundamentals and compare them to historical precedents, there is a case to be made that stocks (in particular in the US) are above fair value, if not
rich.
Last month,
at the MarketCounsel Summit in Miami, during a panel discussion about advisory - firm
valuations,
Rich Gill of Wealth Partners Capital Group cited what might be 2018's most bankable theme in the financial advice space.
Netflix's stock
valuation has been a constant source of debate for years, and currently is trading
at a price - to - earnings (P / E) ratio of 123x, which is
rich by almost every measure — no matter what kind of business model it is.
In contrast, the recent «bull market» (probably better viewed as an upward correction in an ongoing secular bear market) started
at valuations too
rich to justify an aggressive investment position.
According to some neat supporting research from James Montier, the global equity strategist
at Dresdner, Kleinwort, Wasserstein in London, the U.S. is hardly alone in these
rich valuations.
Once
valuations are
rich and our broad return / risk estimates are negative, our willingness to accept market risk generally requires a window with two exits — one below,
at the point where the trend - following measures deteriorate, and one above,
at the point where overvalued, overbought, overbullish conditions emerge.
Given that
valuations were already
rich when the VIX, a commonly used measure of S&P 500 volatility, was
at 10, a doubling of volatility suggests stocks should be trading closer to 16 or 17 times earnings, not 21.
Water stocks are a safe bet much like utilities, and for that reason, they're no get
rich quick play, especially
at their current
valuations.
But even during post-credit crisis periods, some combinations of market conditions have warranted
at least a moderate speculative exposure to market fluctuations despite
rich valuations.
But given today's low interest rates (recently about 2.3 % for 10 - year Treasuries) and relatively
rich stock
valuations (Yale finance professor Robert Shiller's cyclically adjusted P / E ratio for the stock market recently stood
at 29.2 vs. an average of 16.7 since 1900), it would seem to strain credulity to expect anything close to the annualized returns of close to the annualized return of 10 % for stocks and 5 % for bonds over the past 90 years or so, let alone the dizzying gains the market has generated from its post-financial crisis lows.
An average bear market within a «secular» bear market period (a period generally about 17 - 18 years, where
valuations begin
at rich levels and achieve progressively lower levels over the course of 3 - 4 separate bull - bear cycles) is about 39 %, and wipes out about 80 % of the preceding bull market advance.
Most are now vastly more expensive, trading
at spreads or
valuations considerably
richer than historical averages.
We'll start with the fact that there is [sic] essentially four kinds of penny stock companies in the Pump & Dump world: (1) the kind where the management is in on the scam and is directly knowledgeable and complicit with the intent to deceive the public; (2) the kind where some poor schmoe has a great idea (
at least he thinks it is) that requires financing, and becomes the mark of a parasitic «funder» who makes all kinds of promises of unlimited monies and
riches beyond the mark's wildest dream; (3) the kind where the company is absolutely for real but the shares have been hyped (sometimes hijacked) into ridiculous
valuations; and, (4) a hijacked empty and inactive shell.
Looking
at listed companies in the US now, following the rise in equity
valuations and borrowing for buybacks, it would be hard to characterize the average stock as undervalued, or cash
rich.
John Hussman
at Hussman funds is careful to qualify the value of this analysis: «
Rich valuation is strongly associated with weak subsequent returns, but only reliably so over periods of 7 - 10 years.
Typically, when stocks trade
at very
rich valuations, a slight misstep in a quarter can lead to a dramatic sell - off.
The home page of my A
Rich Life blog contains a section called «People Are Talking»
at which I set forth 105 comments from both big - name experts and ordinary investors about the need to make the transition from the failed Buy - and - Hold model for understanding how stock investing works to
Valuation - Informed Indexing, the investing model of the future.
Valuation - Informed Indexing is Buy - and - Hold with the Get
Rich Quick element (the idea that you don't need to look
at the price
at which stocks are selling before putting money on the table) deleted.
While certain high growth companies might be fairly valued
at these levels, highly mature, low growth businesses like WD - 40 have no history of trading consistently
at these sorts of
rich valuations.
This suggests that NTRs may offer a better option for investors who are concerned about
rich public REIT
valuations that may overstate underlying asset value, especially now, when traded REIT prices are
at historic highs and yields are near historic lows.
Even
at historically
rich valuations, Hong Kong's office market is extremely active while investors in the retail market are waiting for clearer signs of a turnaround before committing.