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08-08-2011, 01:34 AM
Now here I am, reading up on the latest Euro developments on buying Spainish and Italian bonds, aka. Euro QE2.
I noticed this forum pretty silent past couple of days. Haha.
I'm a avid student of sentiment analysis, esp on retail investors.
But the sound of hearing a pin dropping still couldn't compared to then days after Lehman Bros collapse.
Came across this article in WSJ, and thought of sharing with all.
Will those who take more risks receive greater rewards this time?
There are only a few reliable rules of investing. One of them is that perceived risk and actual risk tend to be inversely related: The more dangerous the markets feel today, the more likely they are to produce generous returns tomorrow. Fear has always been the best fertilizer for future bull markets.
After the market's sickening fall and Standard & Poor's downgrade of U.S. debt, how can you weigh whether investors have been frightened enough to make stocks cheap? The first thing to remember is that in both the stock market and the supermarket, value and price aren't the same thing.
After the market's sickening fall and Standard & Poor's downgrade of U.S. debt, how can you weigh whether investors have been frightened enough to make stocks cheap? The first thing to remember is that in both the stock market and the supermarket, value and price aren't the same thing.
Yes, both the Dow Jones Industrial Average and S&P 500-stock index have fallen by more than 10% since their April highs.
But the most common measure for estimating value is price/earnings ratio. The number is a fraction, with the market price (or level of the stock index) as the numerator and earnings (or total profits of the companies in the index) as the denominator. When the numerator shrinks by a relatively small amount, the overall P/E ratio doesn't move very much.
Christophe Vorlet
"In the grand scheme of things, this is a blip," says Robert Arnott, chairman of money manager Research Affiliates in Newport Beach, Calif. It is a mistake, he adds, to "think that a 5% one-day change in price or a 14% dip from the highs can create bargains."
Consider the measure preferred by the great investment analyst Benjamin Graham and refined by Yale University economist Robert Shiller, called the "cyclically adjusted" P/E ratio. It smoothes out the market's temporary peaks and valleys by averaging the past 10 years of earnings and taking inflation into account.
At the end of July, the S&P 500 was at 1325, resulting in a P/E of 22.9. At this past week's intraday low of 1167 for the S&P 500, the adjusted P/E had sunk to 20.2.
By that measure, the market got about 10% cheaper in five days. But the historical average for the adjusted P/E over the past half-century is 19.5. So far at least, about all a patient investor can conclude is that stocks are "fairly valued," says William Bernstein of Efficient Frontier Advisors in Eastford, Conn. Stocks have gone from being a bit overpriced to just about average.
They could go a lot lower. P/E multiples tend to shrink as uncertainty grows. When fear has turned to downright terror, the adjusted P/E has gone vastly lower than today's levels, bottoming at 13.3 in March 2009, 6.6 in August 1982, 8.3 in Dec. 1974 and 5.6 in June 1932.
The latest market crack might well be an audible signal that the back of the U.S. investor is finally breaking. So far in August, individual investors have been yanking an average of roughly $2 billion a day from U.S. stock mutual funds and roughly $1 billion a day from exchange-traded funds, according to Charles Biderman, chief executive of TrimTabs Investment Research. That only worsened an exodus from stocks that has been building for years.
It isn't just small investors who are fleeing the U.S. stock market. Pension funds have been net sellers of U.S. stocks for 11 quarters in a row, notes Mr. Biderman.
A leading money manager who sits on the investment committees of several endowment funds tells me that at every meeting he has attended for the past year, the only major topic of discussion has been how to get out of U.S. stocks and into alternative investments like hedge funds and private-equity portfolios.
"Some of the biggest pensions and endowments in the country," he says, "want nothing to do with risk and nothing whatsoever to do with U.S. stocks." Meanwhile, corporate insiders have been selling roughly 10 times more shares than they have been buying, according to Mr. Biderman.
This systemwide flight from stocks may get worse before it reverses. For long-term investors who commit to buying gradually over time, the stock market is getting cheaper. But it may well get cheaper still under the pressure of so much forced selling.
The paradox, of course, is that if the market does continue to fall until valuations reach the levels of, say, March 2009, no one will want to buy. If you are a long-term investor, now is probably an opportune time to rebalance your portfolio, trimming back your bonds a bit and adding the difference to your stocks.
But those who did buy stocks back in March 2009 should remember that the very thought of doing so probably made you feel sick to your stomach. That feeling doesn't seem to be quite here again—not yet, at least.
http://online.wsj.com/article/SB10001424...76830.html
I noticed this forum pretty silent past couple of days. Haha.
I'm a avid student of sentiment analysis, esp on retail investors.
But the sound of hearing a pin dropping still couldn't compared to then days after Lehman Bros collapse.
Came across this article in WSJ, and thought of sharing with all.
Will those who take more risks receive greater rewards this time?
There are only a few reliable rules of investing. One of them is that perceived risk and actual risk tend to be inversely related: The more dangerous the markets feel today, the more likely they are to produce generous returns tomorrow. Fear has always been the best fertilizer for future bull markets.
After the market's sickening fall and Standard & Poor's downgrade of U.S. debt, how can you weigh whether investors have been frightened enough to make stocks cheap? The first thing to remember is that in both the stock market and the supermarket, value and price aren't the same thing.
After the market's sickening fall and Standard & Poor's downgrade of U.S. debt, how can you weigh whether investors have been frightened enough to make stocks cheap? The first thing to remember is that in both the stock market and the supermarket, value and price aren't the same thing.
Yes, both the Dow Jones Industrial Average and S&P 500-stock index have fallen by more than 10% since their April highs.
But the most common measure for estimating value is price/earnings ratio. The number is a fraction, with the market price (or level of the stock index) as the numerator and earnings (or total profits of the companies in the index) as the denominator. When the numerator shrinks by a relatively small amount, the overall P/E ratio doesn't move very much.
Christophe Vorlet
"In the grand scheme of things, this is a blip," says Robert Arnott, chairman of money manager Research Affiliates in Newport Beach, Calif. It is a mistake, he adds, to "think that a 5% one-day change in price or a 14% dip from the highs can create bargains."
Consider the measure preferred by the great investment analyst Benjamin Graham and refined by Yale University economist Robert Shiller, called the "cyclically adjusted" P/E ratio. It smoothes out the market's temporary peaks and valleys by averaging the past 10 years of earnings and taking inflation into account.
At the end of July, the S&P 500 was at 1325, resulting in a P/E of 22.9. At this past week's intraday low of 1167 for the S&P 500, the adjusted P/E had sunk to 20.2.
By that measure, the market got about 10% cheaper in five days. But the historical average for the adjusted P/E over the past half-century is 19.5. So far at least, about all a patient investor can conclude is that stocks are "fairly valued," says William Bernstein of Efficient Frontier Advisors in Eastford, Conn. Stocks have gone from being a bit overpriced to just about average.
They could go a lot lower. P/E multiples tend to shrink as uncertainty grows. When fear has turned to downright terror, the adjusted P/E has gone vastly lower than today's levels, bottoming at 13.3 in March 2009, 6.6 in August 1982, 8.3 in Dec. 1974 and 5.6 in June 1932.
The latest market crack might well be an audible signal that the back of the U.S. investor is finally breaking. So far in August, individual investors have been yanking an average of roughly $2 billion a day from U.S. stock mutual funds and roughly $1 billion a day from exchange-traded funds, according to Charles Biderman, chief executive of TrimTabs Investment Research. That only worsened an exodus from stocks that has been building for years.
It isn't just small investors who are fleeing the U.S. stock market. Pension funds have been net sellers of U.S. stocks for 11 quarters in a row, notes Mr. Biderman.
A leading money manager who sits on the investment committees of several endowment funds tells me that at every meeting he has attended for the past year, the only major topic of discussion has been how to get out of U.S. stocks and into alternative investments like hedge funds and private-equity portfolios.
"Some of the biggest pensions and endowments in the country," he says, "want nothing to do with risk and nothing whatsoever to do with U.S. stocks." Meanwhile, corporate insiders have been selling roughly 10 times more shares than they have been buying, according to Mr. Biderman.
This systemwide flight from stocks may get worse before it reverses. For long-term investors who commit to buying gradually over time, the stock market is getting cheaper. But it may well get cheaper still under the pressure of so much forced selling.
The paradox, of course, is that if the market does continue to fall until valuations reach the levels of, say, March 2009, no one will want to buy. If you are a long-term investor, now is probably an opportune time to rebalance your portfolio, trimming back your bonds a bit and adding the difference to your stocks.
But those who did buy stocks back in March 2009 should remember that the very thought of doing so probably made you feel sick to your stomach. That feeling doesn't seem to be quite here again—not yet, at least.
http://online.wsj.com/article/SB10001424...76830.html
