I like the enthusiasm for the market on the boards and in general. All my friends are buying too. …When people are… content and happy I find myself selling.
Hi Anurag, Your friends must be different than mine. None of my friends have mentioned a stock to me in years. This seems a very, very, tough market, which has been just inching up above the flat-line at a glacial pace. I know that you are seeing euphoria, but for the life of me, I don’t know where you are seeing it. All I hear is worry about the market (your worry included).
Saul
I do not know about Anurag but my reply would be that euphoria lies in the widespread assumption, reflected in very high asset prices, that in the last six years central bankers have acted wisely and well and the outcome of their actions will be beneficial.
Scepticism about that view is why many well-known investors have been buying gold and gold miners. The market is not a free market. It has been transformed into a Ponzi scheme called TINA.
Investors regard the question as an abstraction, something that practical people need not get into. But it is constantly on my mind as I ride the Ponzi along with everyone else. Last one in’s a cissy!
Over the last 12 years, I have seen a distinct pattern emerge on the boards. When people are in despair I am usually purchasing every day and when they are content and happy I find myself selling.
Anurag,
It seems like every week there is a new thread on how market is overvalued and we should be selling out:
It does surprise me that the huge drop in oil prices hasn’t been taken into account.
First of all, low commodity prices world wide (oil included) is deflationary by definition, and it’s not indicating higher gold prices (sorry about that).
Second, the whole energy sector, with a huge market cap, has greatly reduced, or zero, or negative, earnings, which is obviously raising the indices’ PE ratios.
Just to give you an idea what I’m talking about, EXXON (XOM), usually has a PE of about 9, and now has a PE of 35, not because of suddenly discovered growth prospects, but because the E part of PE (earnings) have plummeted, but P (price) is still about the same. Now think of the whole oil sector. Companies with no earnings, or negative earnings, still have large market caps, and enormous PE’s. So you can say the market’s PE is high, but it sure isn’t as high as it appears for the entire rest of the market. Stock XXX, with a PE of 15, and growing at 25%, isn’t over priced because XOM is. And because XOM is overpriced by PE reckoning, it doesn’t make the whole market euphoric. Barring acute market crashes, this is one of the most uneuphoric long-term markets I’ve ever seen. (sorry, again)
It seems like every week there is a new thread on how market is overvalued and we should be selling out
You don’t look for voices on threads alone. Look around in your social circle. Look on various TMF services board and also the Piper of this board. Those threads are likely supported by likes of me. Need both types to support a market. Someone gets to be right with the other must be wrong and eventually hide their tail in their legs. None of us can say who will be right. We will find that in hindsight. Today we just place our bets and share what we do.
Denny - How do you interpret the ^VIX? I looked at a 26 year chart (or 1 year chart for that matter) and it seems to be at a normal LOW price. What does that mean? I’m not familiar with the index. It seems to be inversely correlated to the S&P price, but not predictive at all. It spikes up when S&P drops down. I guess just a confirmation data point of a drop.
Some people like to take numbers thrown out by indexes or other investing calculations as scientifically accurate measurements. They are not, they are more like body language, like the expression on a face, you have to figure it out.
Years ago I was to make a business proposal to two Japanese gentlemen. I was warned that they had “inscrutable faces,” that “hai” did not mean “yes,” it meant, “I understand.” With that preparation I went to make the sale. My quarter century experience reading western body language was entirely useless. Inscrutable means you are talking to a stone wall. I was entirely surprised when they said “yes” and signed on the dotted line. Smiles broke out on their faces and this was body language I could deal with. With that introduction,
VIX is the S&P 500 volatility index. The way the Black-Scholes Option Pricing model works, the higher the volatility, the higher the price of the option. When VIX is high, sell options. When VIX is low, buy them back. VIX is also considered a fear index. The higher the VIX, the more fear there is in the market and this happens when prices are low. When VIX is low investors are complacent because prices are high. There is a fairly high inverse correlation between the S&P 500 and the VIX.
Does the VIX predict the market direction? I don’t know.