Brexit - REQUIRED READING!

There’s a very reassuring post by Morgan Housel on the MF which is really worth looking at if you have access. It’s called Brexit: What we are (and aren’t) doing.

http://www.fool.com/investing/2016/06/24/brexit-what-we-are-…

I said above “if you have access” because I got it in an email from Motley Fool One, but I discover that it was sent out originally to all the paying services, but now the MF has made it available to everyone as a public service. I suggest reading the whole article. It’s not long. But if you don’t have the patience, just scroll down to the graph of the S&P over the last 140 years, adjusted for inflation and dividends, and read the discussion of the graph.

Saul

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The Brexit itself is irrelevant. I was in Munich the day the news came out that they had voted to leave. I can confirm that there was no panic in the streets and everyone was still going to work as normal.

The only thing that is concerning is that many stocks have reached such high valuations that non-news such as the Brexit causes a market wide panic.

I don’t think those kind of valuation issues are a problem for Saul’s stocks.

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We would like to say that Brexit is not relevant.
How this or that stock be hit so much due to Brexit? We like to find the answer to be: ‘the business is still sound and it is an over-reaction’.

Sure. But it all tells you that the value of stocks is fickle. It was smooth sailing yesterday and today the world has turned just like that on a dime.

Is SWKS cheap? is it now very cheap? All depends on how most in the market would think. They can think it is and they can think it is not. We (SWKS long) think it is and we think the big moneys just hasn’t noticed it yet. Their buddies are not talking about it.

Now Brexit happens and the automated trade programs have been selling.

The question is when will the rest see SWKS as a good place to put money? When? even before Brexit, this stock has been languishing.

We can say the same for SKX. They may not be strongly affected in any ways by Brexit but the stock sure is.

tj

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We would like to say that Brexit is not relevant.
How this or that stock be hit so much due to Brexit?

One has to make a distinction between relevance and influence. Of course the vote on Brexit had an influence on the stock market but is it relevant enough to change your investing strategy?

I don’t see any need to change my investing strategy so, for me, Brexit is irrelevant. Like any event that moves stock price I review each of my positions to see if the change in price is large enough to warrant some action. For example, this morning ARMH got hit, down about 8% at the open. I checked the stock and the options and could not find a reason to trade either. So far Grexit has not resulted in a single trade besides my extreme long shot (up 9.9% today).

Denny Schlesinger

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Um yes. But a 140 year chart is convenient in neatly concealing doldrums long enough to be disastrous for the investor unfortunate enough to encounter them. Morgan’s thing is ‘the market always bounces back’ (ie: soon). It does not.

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The only thing that is concerning is that many stocks have reached such high valuations that non-news such as the Brexit causes a market wide panic.

Rbuckyfuller,

I keep seeing posts about how many stocks are overvalued even though most/all that I follow have significantly lower valuations than they did a year ago and a few spot checks show PE values that are at multi-year lows. I just wonder what is your basis for saying many are so overvalued now. To me it seems to be quite the opposite.

Thanks,
Steve

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The current P/E of the S&P 500 is 23. These are generally not growth stocks.

Also consider the shiller-pe of stocks over the last decade. We are expensive.

http://www.multpl.com/shiller-pe/table?f=m

Are a decent number of stocks cheaper than a year ago? Yes. But things were even more expensive a year ago.

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I always come up against PE reversion to the mean when I do DD on most potential purchases. The PE chart shows multiple expansion where growth rate has not necessarily increased (in line, of course, with the encouragement of the market by the Fed., apparently a new, if dangerous remit). This seems a good place (thank you Saul) to find companies that do not have that drawback although they are nearly always much too racy for me.

The current P/E of the S&P 500 is 23.

As someone posted on this board a few weeks ago, remove Amazon, and the rest of the S&P is at a PE of 17. (This is due to Amazon’s large size and its huge PE.)

Saul

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