While the sell-off earlier this month led to lower share prices, according to a recent article in The Wall Street Journal, “they are still far from cheap.” The article points out several factors that led to the S&P 500’s dip, including “worries over how much the Federal Reserve will have to raise interest rates,” and “the wipeout in products that bet against volatility.” It argues, however, that the market’s valuation was at the center of… Read More
In a recent article for The Wall Street Journal, Burton Malkiel, author of the celebrated market tome A Random Walk Down Wall Street, wrote that “Investors have reason to worry.” The chief investment officer of Wealthfront argues that all asset classes appear to be overpriced at the moment, and that an investor’s best defense in the effort to control risk should include both diversification and rebalancing. “Broad diversification,” writes Malkiel, “is rightly known as ‘the… Read More
A recent article by Jeff Sommer of The New York Times poses the question: “Is this the top of the market? Is it time to sell?” “Simply put,” writes Sommer, “my answer is this: If you’re a stock investor, be prepared for a major decline, not because one is necessarily coming soon but because no one can predict where the markets are heading.” The article points out that the current economic expansion is the third… Read More
Market tops tend to have three characteristics in common, and only one of them is reflected in the current environment, according to a recent article in Barron’s. The article cites comments by columnist Mark Hulbert, who refers to valuation metrics such as P/E, price-book, price-sales and price-dividend ratios as weak indicators of market tops but adds that we ignore them “at our peril, since it’s also true that almost all bull market tops in history… Read More
In a recent Barron’s article, Boston-based asset management firm GMO’s co-founder Jeremy Grantham sets the record straight after what he calls “a few misquotes and misunderstandings by journalists.” The journalists, writes Grantham, implied that he believes high share prices are here to stay and that “regression to the mean has ended. This is, of course,” he asserts, “inaccurate, as readers of my quarterly letters know.” Grantham emphasizes his belief that the speed of mean regression… Read More
Countries don’t have to be great to see significant market growth, according to Research Affiliates’ CEO Rob Arnott as explained in a recent Investment News article. In fact, the article says, since Arnott first recommended emerging markets in January, the “average diversified markets fund has gained 7.8%, and 17.8% since the February low.” He believes the asset class offers “an unusual three-way combination of low valuations, depressed currencies and strong momentum.” Here’s how: Low valuations:… Read More
Even though there has been a lot of commentary around current high stock valuations against lackluster earnings growth for the S&P 500, it is “neither practical or precise” for an investor to use this as a basis for lowering their exposure to stocks or selling their portfolio. This according to Miles Johnson of the Financial Times who writes, “Warnings about irrational stock valuations fail the test of practical advice because they inherently require an unspoken… Read More
“Valuations and prices need to be judged relative not to the past but to price and valuation of other assets available right now,” writes Zachary Karabell, head of global strategy at Envestnet, in a recent Barron’s article. Karabell argues that such an approach in today’s environment of both low inflation and paltry interest rates would indicate that “equities overall are quite reasonably priced.” He warns against the approach where fairness of price is determined relative… Read More