Author Topic: Will S&P 500 Retest Recent Low By End of April  (Read 39451 times)

vinod1

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Re: Will S&P 500 Retest Recent Low By End of April
« Reply #220 on: May 27, 2020, 04:22:08 PM »
One needs to understand what GMO means by overvalued. The main assumption is that fair value means that stocks are priced at a level that can be expected to generate 6.5% real returns.

They talk about this multiple times and in every monthly 7 year expected returns chart, they have a dotted line that shows the 6.5% real return level.

When Buffett talks about stocks being good value or reasonably priced he is talking about returns relative to bonds. He does not baseline stocks to 6.5% real.

Hussmann and others who pound the table that stocks are overvalued believe that 6.5% real returns are a divine right of investors. Sort of like the gravitational constant that holds true forever.

We have about 150 years of capital market returns. If we think 20-30 years as long term, we have 5-7 non-overlapping periods of stock market returns. It is almost like drawing inferences from the results of 5-7 coin tosses. I think we need to be much more skeptical about drawing conclusions (w.r.t stock market valuations) given the data we have.

Vinod

 
« Last Edit: May 27, 2020, 04:27:06 PM by vinod1 »
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mattee2264

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Re: Will S&P 500 Retest Recent Low By End of April
« Reply #222 on: May 28, 2020, 02:48:36 AM »
 It was sloppy wording. Buffett is always careful to qualify any statements he makes about the market and GMO should have enough sense to do so as well.
Essentially their argument is based on the idea that profit margins and returns should be mean reverting. That is true in an industrial economy but in a services economy dominated by technology companies that ain't necessarily so.

 The argument against regulating tech companies is that in theory creative destruction should in theory create dynamic competition over time. I'd agree though that letting them snap up any potential competitors before they get off the ground weakens this competitive dynamic.

TwoCitiesCapital

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Re: Will S&P 500 Retest Recent Low By End of April
« Reply #223 on: May 28, 2020, 07:45:07 AM »
I agree it's one thing for the markets to misprice for a short period of time but to say it was mispriced for 20 years is suggesting ALL capital investing during that time was dumb money.  Not to mention everyone's favourite oracle has for a long time said markets are cheap, whether his actions suggest it or not.  Valuation at the end of the day is subjective.  Subjective to everyone's risk tolerance, hurdle rates, discount rates etc.  No ONE person can say it's overvalued when the price is the price for that long.

For one, I dont think he is an idiot.

Second, generally speaking I do agree with the bulk of what he is saying.

That said, 20 years is between 30-50% of ones useful investing life assuming ages 20/25-60/70 or some variance of that. If you want to look at bonds, who is to say bonds are not in a massive multi decade bubble? Why is it widely assumed that the bond market is accurate but the stock market subject to "valuation" concerns? IMO 0-1% long term interest rates is infinitesimally more egregious that a 20-25x multiple on stocks.

My main point, perhaps missing the forest for the trees in an otherwise reasonable article, is the sheer absurdity to anyone making some kind of self aggrandizing, wanton claim about "the market" over a period of time THAT long!

Not necessarily dumb money. Just willing to dance while the music is playing

I don't think any of us would call Stanley Druckenmiller dumb money, but even he went long tech stocks at the top of 2000 equity bubble b/c he couldn't stand sitting out anymore.

Market participation at high prices is a reflection of people seeing few alternatives and feeling like they have to play along. Most of these people won't just take their ball and go home when markets are ridiculous like Buffett did with his partnerships.

But none of that changes the facts that markets have been expensive for most of the last 20 years using just about any metric available -  earnings multiples (both long-term and short-term), cash flows, equity values, replacement values, dividend yields, PEGs, etc. And it's even worse if you believe some of those things are unsustainable like GMOs concern on profit margins, or the lack of regulation/anti-trust action in the tech space, or benign inflation between 0-2%.

There's no reason markets COULDN'T be overvalued for much of a decade or two just like we have historical examples of markets being desperately cheap for decades at a time like after the Great Depression and the 1970s.

physdude

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Re: Will S&P 500 Retest Recent Low By End of April
« Reply #224 on: June 04, 2020, 01:48:42 AM »
It is kind of interesting that nobody thought of putting up a survey on whether we will hit all time highs again within 2-3 months in March (TBH, I would have thought that such a person was at least a bit screwed up in the head if such a poll had appeared then). If there is any lesson, it is that the market can do something that nobody expects and looks totally insane.

I am totally puzzled by this meteoric rise in the market and am not ashamed to say that I got on the wrong end of it (a couple of technical signals I use caught the bottom pretty well and, while they never told me to sell, simple valuation and economic news caused me to sell the little bit that I bought at the lows when it got 20% higher). Every bit of common sense tells me that the market would be overvalued even if we didn't have the riots and the pandemic and, with them included, it has to be a bubble. I have a bunch of puts based on that but I wouldn't be surprised if they expire worthless.

buffetteer1984

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Re: Will S&P 500 Retest Recent Low By End of April
« Reply #225 on: June 04, 2020, 06:09:47 AM »
Cramer who keeps in touch with David Tepper said on squawk box that Tepper has gotten much more bullish on the markets since claiming the markets was over valued mid may.  Sounds like he's trying to play some catch up from being too under invested.
« Last Edit: June 04, 2020, 06:13:27 AM by buffetteer1984 »

mattee2264

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Re: Will S&P 500 Retest Recent Low By End of April
« Reply #226 on: June 04, 2020, 10:20:11 AM »

 agree physdude. It isn't difficult to see the market rising a further 10% with lots of potential catalysts such as more fiscal or monetary easing, a faster than expected path towards a full re-opening of the economy, a near eradication of the virus by the end of the summer, and promising vaccine trial results.
But it is becoming very difficult to imagine what could sink the market 30+%.

I don't think even a second wave would do it. I think the fact that we are more prepared and know a lot more about the virus should allow governments to implement much shorter and much more partial lockdowns and it may even be that social distancing/mask wearing may be enough. Scientists are putting a lot of effort into tracking the virus so it should be easier to nip it in the bud before it spreads like wildfire. And even if the economic data is a lot worse than expected and takes a lot longer than expected to improve I'd expect this would be fully offset by more aggressive fiscal and monetary easing.

Jurgis

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Re: Will S&P 500 Retest Recent Low By End of April
« Reply #227 on: June 04, 2020, 10:36:43 AM »

 agree physdude. It isn't difficult to see the market rising a further 10% with lots of potential catalysts such as more fiscal or monetary easing, a faster than expected path towards a full re-opening of the economy, a near eradication of the virus by the end of the summer, and promising vaccine trial results.
But it is becoming very difficult to imagine what could sink the market 30+%.

I don't think even a second wave would do it. I think the fact that we are more prepared and know a lot more about the virus should allow governments to implement much shorter and much more partial lockdowns and it may even be that social distancing/mask wearing may be enough. Scientists are putting a lot of effort into tracking the virus so it should be easier to nip it in the bud before it spreads like wildfire. And even if the economic data is a lot worse than expected and takes a lot longer than expected to improve I'd expect this would be fully offset by more aggressive fiscal and monetary easing.

Market cannot drop! Everybody buy, buy, BUY!
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jmp8822

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Re: Will S&P 500 Retest Recent Low By End of April
« Reply #228 on: June 04, 2020, 06:43:18 PM »

 agree physdude. It isn't difficult to see the market rising a further 10% with lots of potential catalysts such as more fiscal or monetary easing, a faster than expected path towards a full re-opening of the economy, a near eradication of the virus by the end of the summer, and promising vaccine trial results.
But it is becoming very difficult to imagine what could sink the market 30+%.

I don't think even a second wave would do it. I think the fact that we are more prepared and know a lot more about the virus should allow governments to implement much shorter and much more partial lockdowns and it may even be that social distancing/mask wearing may be enough. Scientists are putting a lot of effort into tracking the virus so it should be easier to nip it in the bud before it spreads like wildfire. And even if the economic data is a lot worse than expected and takes a lot longer than expected to improve I'd expect this would be fully offset by more aggressive fiscal and monetary easing.

Market cannot drop! Everybody buy, buy, BUY!

LOL

AzCactus

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Re: Will S&P 500 Retest Recent Low By End of April
« Reply #229 on: June 05, 2020, 05:48:28 AM »

 agree physdude. It isn't difficult to see the market rising a further 10% with lots of potential catalysts such as more fiscal or monetary easing, a faster than expected path towards a full re-opening of the economy, a near eradication of the virus by the end of the summer, and promising vaccine trial results.
But it is becoming very difficult to imagine what could sink the market 30+%.

I don't think even a second wave would do it. I think the fact that we are more prepared and know a lot more about the virus should allow governments to implement much shorter and much more partial lockdowns and it may even be that social distancing/mask wearing may be enough. Scientists are putting a lot of effort into tracking the virus so it should be easier to nip it in the bud before it spreads like wildfire. And even if the economic data is a lot worse than expected and takes a lot longer than expected to improve I'd expect this would be fully offset by more aggressive fiscal and monetary easing.

Market cannot drop! Everybody buy, buy, BUY!

Maybe I misread but did he actually say the market couldn't drop or he doesn't see it dropping 30%?  I think there's a bit of a distinction there.