I’m Back

There has been a large gap between my most recent posts.  It’s been hard to keep writing the same thing over and over again, and to watch the market continue to go higher. I have not given in and bought into this market, though.  I am still going to keep that patience because the higher this goes without any substantial increase in fundamentals, the more I know that things will revert back and revert back in a strong way.

I recently purchased a Bloomberg machine which allows me to backtest stock strategies over the past 21 years.  That’s annoying, however, considering I would want to backtest going back 40-50 years, to see how my strategies would have faired during secular bull and bear markets.  Now…with that in mind, going back 21 years, the stock market total return has been about 9.5% per year which is actually lower than the 100+ year historical average of 9.9%.

Since September 18th, we have had a nice pull back on the S&P 500 and I love seeing the pundits on TV talking about how this is a great buying opportunity. Of course it is…if you want to ignore all fundamentals and historical valuation metrics that have proven to be accurate.  Market Cap to GDP ratio, which Warren Buffett describes as probably the single most accurate stock market valuation metric at any given time, is at levels that have only been rivaled by late 1999 and early 2000. Based on these metrics, the 10 year outlook on the S&P 500, including dividends, we are near 0% returns, annualized, per year for the next 10 years. That’s awful. Historically, the market should be making 10% per year, so to get to that kind of valuation, the market has to drop in half to get the expected 10% per year annualized return.  It sounds unreasonable?  Ok.  The same thing was said after the mid 1970s cyclical bull market.


The Story Hasn’t Changed

I haven’t posted in a while.  It’s been a frustrating year.  I was getting excited when the S&P started the year down 5%. I thought “This is it!”  And of course, I was wrong. I keep reading more and more people say that we are in the beginning parts of a new secular bull market.  I actually get upset when I read that.  It’s so unbelievably dangerous.  Secular markets start and end based on valuation.  We are at all-time historical highs in valuation.  Higher values than even 1999 and 1929, in many regards.  Secular bull markets have started, in the past, when the stock market to GDP ratio has been sub 50%, and right now we are at 130%!

Patience is a virtue and I lack it in every aspect of my life…except investing.  I’ve been blessed with that ability to be patient.  Has it been trying?  Of course.  But these cycles do take time.  As John Hussman said in his post tonight, and as a former partner of mine always says “Market tops aren’t just points…They are processes.  We are in the process, hopefully, of this.  I say “hopefully” because I have been wrong for quite some time. But I do feel good knowing that the longer I am wrong, the more likely the devastating result that will follow.  Thinking that another 50% drop (3rd in 15 years) is not likely is a fool’s wish.  History has shown that during times of immense overvaluation, prices fall, fundamentals don’t rise.

For those reading this who think I’m kooky, keep on thinking it.  It’s been hard thinking otherwise.  But again, please don’t say “it was so obvious” in a few years when the market has fallen 40%.  It’s just insulting.

Survey Results – What is the Best Asset Class to Invest In?

As you have seen on the site, you get a survey popping up when you visit. This is not meant to annoy but I genuinely want to see what my readers think of things in the economy and investing.

On March 28th, I put the question up: What is the Best Asset Class to Invest In?  Here are the results











I am not going to lie. I was surprised. 48% said Real Estate! So let’s think back to 2009.What would investors have said about this five years ago? Real estate and stocks would have been at the bottom, right?

So my point here is this:  People follow investments usually in the later stages of their big increases in price.  The key is to find these assets when others don’t want them.  Gold, a few years ago, was untouchable! Now it’s only the favorite of 12% of my readers.

Think independently people.  You can’t chase returns.  You have to think and look at true value and not care what others think.  That’s the only way to get above average returns.  If someone tells you otherwise, they are lying to you to get your money and charge you fees or commissions.  Plain and simple.