# Is wall street turning into a bear market



## phoenix_n (1 Feb 2007)

http://www.nytimes.com/2007/02/01/b...&en=c2a217076d157b62&ei=5094&partner=homepage


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## joe sod (1 Feb 2007)

Yea I think the stock market is long due a correction. From what Ive been reading it is best to stay out of the market for the next 6 months or so. What about the Iseq dominated by banks and construction, it is long due a correction. I would love to know what proportion of the Iseq is foreign owned and what proportion is irish owned. My suspicion is that more and more irish people are invested in the Iseq


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## whathome (1 Feb 2007)

joe sod said:


> From what Ive been reading it is best to stay out of the market for the next 6 months or so.


 
What if there's no correction within the next six months?

The problem with stock market speculation is that for each pundit that says the market is due a correction, you'll get another one saying it's a great time to invest.

I think the best policy is to ignore media speculation on stockmarket direction altogether, most of it is rubbish.


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## cik (2 Feb 2007)

Cant read the subs only link...

A bear market when we are at multi year highs?
Calling tops is not easy but calling a bear market now?
I have been very surprised how strong the market has been in the last couple of months, many where expecting a large correctoin before Christmas. 


If you are trying to make money from the timing of these things good luck, you will need it!


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## room305 (4 Feb 2007)

A down trend of lower lows broken only by lower highs is the usual technical sign of a bear market. No sign of that in the general indices yet!

Bearish scenarios prophesising massive stock market corrections are very appealing and massively profitable to those on the right side of the trade. However, predicting when they will occur is almost impossible. Meanwhile as an investor you are either not making money (by staying out of the market) or worse losing money shorting it.


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## joe sod (5 Feb 2007)

Yea I agree that in general you cannot time markets. But nearly every stock market worlwide has risen since the 2003, when there has been no big corrections, when there are so much that can go wrong now, are the markets really pricing in all the risks. Im not saying stay out of the market but i am saying enter it with extreme caution and with more caution than at any time since 2003. The markets are heavily leveraged now with an awful lot of cheap borrowed money involved.


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## room305 (5 Feb 2007)

Couldn't agree more. It has been an extraordinarily long time since either the last 2% or 10% correction on the S&P 500. However, this does not imply a correction is imminent and it certainly does not imply that the answer to the OP's question is positive.


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## phoenix_n (5 Feb 2007)

whathome said:


> I think the best policy is to ignore media speculation on stockmarket direction altogether, most of it is rubbish.


 
The trick is to distinguish between media speculation and media analysis. Dont think the latter should be ignored.


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## whathome (5 Feb 2007)

phoenix_n said:


> The trick is to distinguish between media speculation and media analysis. Dont think the latter should be ignored.


 
There is no difference. You can have any number of media "analysts" saying different things. If you're feeling bullish you will find lots of analysis to support your view, likewise if you're feeling bearish. It's a waste of time in my opinion. Educate yourself, do your own analysis on which stock you want to buy and make a decision. If you like the company and the price - buy it.

This article was written in June 2006, mentions how the S&P nears 2nd longest correction free run:
http://www.usatoday.com/money/markets/us/2006-06-26-sandp-usat_x.htm

S&P index is up 15% since then.  There's no hidden rule that a market must correct after a certain amount of time without a correction.
It's slot machine mentality to believe that markets should move in a certain direction after some period of time.


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## phoenix_n (5 Feb 2007)

whathome said:


> If you like the company and the price - buy it.


 
Totally agree.


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## macbri (6 Feb 2007)

Agree with this as well-when buying a share u should never reply on somebody else recommendation whether through media or friends.

Do your own analysis and based on this make the decision to buy or not.
My own criteria is p/e,dividend,blue chip,cash flow and gearing and I have found some solid gains as well as a couple of dogs.

Wall street is more fundamental in nature than Nasdaq and should be better able to cope with shocks of world economy.

P/E has dropped considerably to high teens so this should give it some support to current valuations


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## joe sod (28 Feb 2007)

Well we have had a correction yesterday. However I think it is not just a blip but the start of something bigger. Yes there is now also a bit of a rebound going on but the fright has now set in. From my reading the japanese yen rose in value yesterday and this is the key to the situation. Speculators are borrowing in yen because it is so cheap to invest in stocks all over the world. Yesterday was the start of the reversal in this which is why the yen rose in value.


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## room305 (28 Feb 2007)

joe sod said:


> Well we have had a correction yesterday. However I think it is not just a blip but the start of something bigger. Yes there is now also a bit of a rebound going on but the fright has now set in. From my reading the japanese yen rose in value yesterday and this is the key to the situation. Speculators are borrowing in yen because it is so cheap to invest in stocks all over the world. Yesterday was the start of the reversal in this which is why the yen rose in value.



I tend to agree. Risk has been priced out of the equation in global stock markets and everything else. Liquidity, liquidity, liquidity is the cry. There is no risk anymore now that we have so much liquidity sloshing about the globe and a mass of unfathomable complicated derivatives to speculate with. Completely ignoring that liquidity is just like (and directly related to) confidence. It always seems ever present until it actually disappears. Risk will be priced back into the market eventually.

However, that doesn't change whathome's point that once you have identified a company that is "good value" (however you might define that value) the fluctuations of the stock market are largely irrelevant. Many companies are trading at outrageously optimistic prices but that will always be the case. There is still value out there (amazingly).

Just to add - it's probably wrong to say stock market movements are "irrelevant" they in fact create opportunities. Be a buyer of dips not a chaser of blips as they say.


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## whathome (2 Mar 2007)

room305 said:


> Just to add - it's probably wrong to say stock market movements are &quot;irrelevant&quot; they in fact create opportunities. Be a buyer of dips not a chaser of blips as they say.


 
Exactly - weeks like this one just bring more companies into a price range where they could be interesting to buy ... although as always I would prefer if there were more opportunities created!


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## ixus (3 Mar 2007)

If you're an investor, it's probably time to start looking at defensive stocks i.e. Healthcare & consumables. 

Investment banks are beginning to recommend this as they're expecting volatility in the markets this year & next.


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## joe sod (3 Mar 2007)

whathome said:


> Exactly - weeks like this one just bring more companies into a price range where they could be interesting to buy ... although as always I would prefer if there were more opportunities created!


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## room305 (4 Mar 2007)

ixus said:


> If you're an investor, it's probably time to start looking at defensive stocks i.e. Healthcare & consumables.
> 
> Investment banks are beginning to recommend this as they're expecting volatility in the markets this year & next.



Judging by the run up in these stocks over the past few months I'd say that boat has well and truly been missed here.


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## smiley (4 Mar 2007)

there are some great blue chip solid companies that have have dipped this week..the dip presents great discounts/better value for investors

once you are buying a company with a relatively low pe, good growth, a boot of cash and a good positive balance sheet history...you shouldnt have to worry too much about the economy etc...this was the basis of ben grahams success and warren buffet...

look on the dip at the moment as a spring 'sale'...


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## room305 (4 Mar 2007)

smiley said:


> there are some great blue chip solid companies that have have dipped this week..the dip presents great discounts/better value for investors
> 
> once you are buying a company with a relatively low pe, good growth, a boot of cash and a good positive balance sheet history...you shouldnt have to worry too much about the economy etc...this was the basis of ben grahams success and warren buffet...
> 
> look on the dip at the moment as a spring 'sale'...



Conditioned dip buying usually works out but the key word is usually. There will be times when it goes horribly wrong as well. However, as you said a good company is a good company.

One thing to be wary of (and I hear it all the time on business news channels) is automatically accepting that "p/e's are at historically low levels". Not only is this statement false, it implies that there is some kind of correlation between general market p/e levels and future returns. That's before we even get into discussing the fact the percentage profit from turnover is quite elevated.

Not saying stocks will go down, just that people shouldn't automatically accept that current valuations are "cheap" because somebody in the media says so.

Find good companies and buy at a price you like.


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## smiley (5 Mar 2007)

yep..i agree...this market sell off is getting interesting though....one would wonder whats going to happen next....its a bit like dominos falling over at the moment and maybe picking up momentum....this carry trade effect and sudden appreciation of the yen may have quite an ill effect...interesting to watch..


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## Duplex (5 Mar 2007)

smiley said:


> yep..i agree...this market sell off is getting interesting though....one would wonder whats going to happen next....its a bit like dominos falling over at the moment and maybe picking up momentum....this carry trade effect and sudden appreciation of the yen may have quite an ill effect...interesting to watch..


 
You can watch it here. US mortgage lender implode-o-meter.  

http://ml-implode.com/


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## joe sod (5 Mar 2007)

I think its 2001 again, I think overall the market will drift lower over the next year at least, its not may 2006, its october 2001, the consensus is that the markets will be turbulent over the next while, which means the big money will stay out, there is no rule that says your money must be always invested in the market, after such big gains over the last year , investors should take a holiday. The chances of a big fall in prices are much higher than more big gains.


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## Remix (6 Mar 2007)

Looking at the Irish stock market during the correction, its volatility was close to matching the worse performers in the more extreme markets such as Brazil and Turkey.

Other emerging markets such as the Czech Republic, Poland and Hungary weathered the storm much better. Even Middle Eastern and African stock markets suffered - but showed more stability than the ISEQ.

I suspect this might be related to the distortions in our own economy but has anyone come across or willing to offer any insights into this extreme behaviour ?


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## gearoidmm (6 Mar 2007)

Duplex said:


> You can watch it here. US mortgage lender implode-o-meter.
> 
> http://ml-implode.com/



This is fascinating to watch.  Commentators have been crying out about this disaster waiting to happen for the last 2 years.  The meltdown in the subprime market has taken everyone by surprise particularly given the speed of the collapse.  now it turns out that even some of the biggest subprime lenders are going to go to the wall and soem very large investment banks are going to be burned quite badly by this.

Until this has run its course, you couldn't say for sure that this correction is over despite the bounce in share prices today.


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## room305 (7 Mar 2007)

gearoidmm said:


> This is fascinating to watch.  Commentators have been crying out about this disaster waiting to happen for the last 2 years.  The meltdown in the subprime market has taken everyone by surprise particularly given the speed of the collapse.  now it turns out that even some of the biggest subprime lenders are going to go to the wall and soem very large investment banks are going to be burned quite badly by this.
> 
> Until this has run its course, you couldn't say for sure that this correction is over despite the bounce in share prices today.



Given the dubious repackaging of some MBS tranches and the fact that any crap sold by Fannie Mae or Freddie Mac seemed to attract AAA credit rating because of an implicit (but supposedly non-existant) government backed guarantee, I tend to agree.

Not only is this mess far from over (indeed it has only just begun - as an avalanche of recently launched lawsuits will attest) it is far from limited to the subprime arena. Watch as it infest Alt-A and above credit securities.


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## macbri (7 Mar 2007)

On ISEQ valuation to Dow,Iseq has a heavy weighing towards financial stocks-ie AIB,BOI,Irish Permanent etc whilst Dow has a more balanced focus.
This is same in Australia where correction was only in order of 6%.

Correction was more severe in Ireland due to this weighing as well as some negative data on Irish housing market which of course will have material impact on Irish financial institutions profitability down the road.


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## room305 (7 Mar 2007)

macbri said:


> On ISEQ valuation to Dow,Iseq has a heavy weighing towards financial stocks-ie AIB,BOI,Irish Permanent etc whilst Dow has a more balanced focus.
> This is same in Australia where correction was only in order of 6%.
> 
> Correction was more severe in Ireland due to this weighing as well as some negative data on Irish housing market which of course will have material impact on Irish financial institutions profitability down the road.



This is nonsense. No new housing information emerged that day. If the sell-off was sparked by a downturn in the Shanghai markets (also nonsense but seems to be the consensus) then why would existing information on Irish housing suddenly become relevant?

If the ISEQ sold off dispropotionately it is probably because there was more speculative and leveraged money in the market.


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## Remix (7 Mar 2007)

room305 said:


> If the ISEQ sold off dispropotionately it is probably because there was more speculative and leveraged money in the market.


 
This rings true to me . I would say that it could be distorted by speculative and leveraged money I would even venture further to say that I think the economy as a whole may be distorted by similiar factors.

Therefore my question. A prudent investor when deciding how to allocate his or her money should be aware of the proportion of their money they're placing in higher risk allocations.

Should holdings in irish assets be considered part of the higher-risk/higher-volatility component of one's wealth/portfolio ?

(My own opinion is that is probably should - and I've adjusted by own portfolio / pension fund accordingly).


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## demoivre (7 Mar 2007)

The disproportionate sell off of the ISEQ might simply reflect the fact that, compared to some of the US indices, it has risen disproportionately between last June and last week - during this period the ISEQ has risen around 40% with the DOW and the S%P 500 up around 19%. In that context I don't think the sell of in Ireland was that unusual.


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## room305 (7 Mar 2007)

demoivre said:


> The disproportionate sell off of the ISEQ might simply reflect the fact that, compared to some of the US indices, it has risen disproportionately between last June and last week - during this period the ISEQ has risen around 40% with the DOW and the S%P 500 up around 19%. In that context I don't think the sell of in Ireland was that unusual.



I would agree with this. The longer and stronger the run without a significant correction, the more speculative momentum chasing money that will be attracted. That is why corrections are healthy for markets, they shake out the weak hands.


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## Remix (7 Mar 2007)

demoivre said:


> The disproportionate sell off of the ISEQ might simply reflect the fact that, compared to some of the US indices, it has risen disproportionately between last June and last week - during this period the ISEQ has risen around 40% with the DOW and the S%P 500 up around 19%. In that context I don't think the sell of in Ireland was that unusual.


 
What you seem to be saying is that it was volatile downwards because it was volatile upwards. In other words, it is a volatile market. I agree. Recent events have made that quite clear. 

Thats how I see it: Higher Volatility. Possibility of disproportionate gains or losses & therefore higher risk.

There is usually some room in every portfolio for this type of investment. The key I think is recognising it as such and understanding the extent of your exposure.


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## demoivre (8 Mar 2007)

Remix said:


> What you seem to be saying is that it was volatile downwards because it was volatile upwards. In other words, it is a volatile market.



TBH I don't follow the ISEQ closely enough to comment on its short term volatility - I am simply saying that, because the ISEQ has experienced a strong run over the past six or seven months or so, I wasn't surprised at the strong sell off when markets took a dive last week because I suspect that there were many people out there who were happy to have made a very decent return in a fairly short period of time.


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## smiley (8 Mar 2007)

i agree...one knows that when they see the chart of whatever going exponential, that a correction is due. My mining stock charts had turned like this. I thought the prices were becoming a bit silly.
What we had was a good healthy correction, which flushed some of the speculators out of the system.

Ive had enough of the high risk shares..miners (kept some gold though), emerging markets and the like for now. Have been buying good defensive companies who have cash in on their balance sheet. At least if there is a  global slow down etc they are less likely to go bust.


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## conor_mc (8 Mar 2007)

smiley said:


> Ive had enough of the high risk shares..miners (kept some gold though), emerging markets and the like for now. Have been buying good defensive companies who have cash in on their balance sheet. At least if there is a global slow down etc they are less likely to go bust.


 
Greed turning to fear there, if you don't mind my saying so smiley.

Personally, I think you're ahead of the curve on this one, but how much longer before the rest of the market has the same idea? How long can they ignore the risks?


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## smiley (9 Mar 2007)

conor_mc said:


> Greed turning to fear there, if you don't mind my saying so smiley.
> 
> Personally, I think you're ahead of the curve on this one, but how much longer before the rest of the market has the same idea? How long can they ignore the risks?



Ah come on, give me a break. Greed? what a joke!....who said i am not entitled to take some profits? I just had a little too much money in very high risk stocks. I wanted to reduce my exposure.



conor_mc said:


> Personally, I think you're ahead of the curve on this one, but how much longer before the rest of the market has the same idea? How long can they ignore the risks?



How long is a piece of string??


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## conor_mc (9 Mar 2007)

smiley said:


> Ah come on, give me a break. Greed? what a joke!....who said i am not entitled to take some profits? I just had a little too much money in very high risk stocks. I wanted to reduce my exposure.


 
Sorry smiley, wasn't meant as a dig at you at all. Was just commenting on it in terms of market psychology and the associated vernacular. Didn't mean it to come across as accusing you of being greedy.


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## smiley (9 Mar 2007)

no problem thats ok  thanks


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## joe sod (14 Mar 2007)

Is the Iseq turning into a bear market, again it falls triggered by wall street, falling almost twice as much as other european markets. I wonder was the peak reached on the 28 of february the tipping point of the iseq index, the markets do not want to revisit it again. Its looking like the downward pressure is now growing, its looking more and more like october 2001.


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## room305 (14 Mar 2007)

Lower highs and lower lows. Don't really follow the ISEQ but I doubt we're in a bear market yet. The recent correction seemed a bit light and I reckon there will be more pain ahead before we can actually declare it over.

The media coverage finally turning fretful and panicky is a good sign.

Caution is the watchword though.


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## macbri (15 Mar 2007)

Its' easy to see why the Iseq was hit hard compared to other markets.

Iseq market cap is primarily made up of financial institutions and construction companies which are fundamentally linked consumer credit/ health of housing economy(ie housing market crash increase risk of bad debts as per US etc) both in Ireland and 4 those that diversified in other economies as well(AIB-US/Poland)

These companies are AIB,BOI,IRISH LIFE,CRH,KINGSPAN etc and these make up majority of market cap in Iseq and have taken biggest hit  yesterday l.
These companies have had a massive upside over the last couple of years on credit boom fuelled by housing bubble  in Irish/US economy over the last couple of years but this now looks to be over.

Other international markets are more balanced in industry make up, hence less volatility when negative financial institution data such as from US hits the newswire.


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## room305 (29 Mar 2007)

If a bear market is typically defined as a succession of lower highs and lower lows, it might be worth noting that the S&P 500 recently put in a lower high.


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## whathome (29 Mar 2007)

room305 said:


> If a bear market is typically defined as a succession of lower highs and lower lows


 
Is it typically defined as this? 

I've never heard of that. I thought it just was a lengthy period where prices were declining, whichever way that may happen.

That lower/higher high/low stuff sounds very mystic meg technical charting babble to me 

I've never seen a recovery from correction suddenly blast back to it's previous high anyway, so you'll generally get a lower high. Not that I believe that it means anything!


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## room305 (3 Apr 2007)

whathome said:


> Is it typically defined as this?
> 
> I've never heard of that. I thought it just was a lengthy period where prices were declining, whichever way that may happen.
> 
> ...



A lengthy period of price declines is easy to spot in retrospect. The lower highs/lower lows definition helps to filter the noise. Whatever you may think about the _predictive_ powers of technical analysis and tea-leaf reading (I have my doubts too) it still serves a purpose. Even Peter Lynch advises selling when a stock falls below its 200-day MA.

A correction recovery is unlikely to immediately blast back to new highs but if it consistently fails to close above the old high (or 'peak') and then falls to even lower than the previous correction level it starts to look much less like a correction and far more like a 'top'.

I am nowhere near beating the drum yet but I am watching with avid interest. Sentiment has remained decidedly bullish as well, which is never a good sign. In any case, for a value investor like yourself whathome, bear markets could be more aptly named "opportunity markets" ...


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## whathome (4 Apr 2007)

room305 said:


> bear markets could be more aptly named "opportunity markets" ...


 
Yep, bear markets don't come frequently enough. During the recent dip I was able to increase my position in a few long term favourites. One problem I've encountered over the past few months is private equity funds taking over two of my holdings.
I hold 14 common stocks and it's frustrating when you have spent weeks or months on analysis only to have your investment swiped.  So you make 25% in one day but then you're holding cash which has to find a new home.

Valuations don't look stretched to me at the moment so I'm still happy to buy when I can take advantage of irrational negativity.


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## room305 (4 Apr 2007)

whathome said:


> Yep, bear markets don't come frequently enough. During the recent dip I was able to increase my position in a few long term favourites. One problem I've encountered over the past few months is private equity funds taking over two of my holdings.
> I hold 14 common stocks and it's frustrating when you have spent weeks or months on analysis only to have your investment swiped.  So you make 25% in one day but then you're holding cash which has to find a new home.
> 
> Valuations don't look stretched to me at the moment so I'm still happy to buy when I can take advantage of irrational negativity.



I am surprised you do not take valuations look stretched. What are you basing that on?

From my perspective a long bull run combined with a limitless supply of cheap and easy money has stretched the valuations of most companies. Still have one or two on my watchlist though and pulled the trigger on one yesterday as it fell following a broker downgrade.

I am aware of some value investors who have moved to inverse value strategies. Shorting companies that are outrageously overvalued. Need a neck like a Fianna Failer though, as overvalued companies very easily become even more overvalued. Also you have to pay the dividend while you hold the shares. Furthermore, private equity mania and expensive land valuations mean even abysmal companies can 'merit' high valuations.


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## whathome (4 Apr 2007)

room305 said:


> I am surprised you do not take valuations look stretched. What are you basing that on?


 
Primarily looking at my watch-list of about 50 companies but even the S&P 500 is trading at 16 to 17 times earnings which although not cheap doesn't look stretched to me.  

Here's the S&P 500 earnings and estimates report as of 30/3/2007 (excel):
http://www2.standardandpoors.com/spf/xls/index/SP500EPSEST.XLS

I don't hold any public Irish companies so I haven't looked at ISEQ valuations very closely.


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## room305 (10 Apr 2007)

whathome said:


> Primarily looking at my watch-list of about 50 companies but even the S&P 500 is trading at 16 to 17 times earnings which although not cheap doesn't look stretched to me.



Hussman has some good work on why such valuations may be flawed.



> It is important for investors to understand how profoundly incorrect and potentially dangerous it is to accept the incessant argument that stocks are cheap on a "forward operating earnings basis." As AQR's Cliff Asness has previously noted, the belief that the current “price to forward operating earnings” multiple is reasonable is based on an apples-to-oranges comparison. It is the trailing P/E on reported net earnings that has a historical average of about 15, not the forward P/E on estimated operating earnings (which Asness estimates as having a historical norm closer to 11)...



Don't forget, at the 1929 peak the p/e ratio for the S&P was at 15. This is not by any means to suggest that prices are massively overvalued and heading for a crash, just that they don't seem particularly cheap at these levels either.


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## whathome (10 Apr 2007)

room305 said:


> This is not by any means to suggest that prices are massively overvalued and heading for a crash, just that they don't seem particularly cheap at these levels either.


 
Yep, as I said, I don't think it's cheap but not overly stretched. 

With regard to the Hussman link, I wasn't referring to forward operating earnings.

Of course I use price/earnings/growth when making an investment decision but that's on an individual company basis and as I mentioned previously, I usually ignore the indexes anyway.


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## room305 (17 Apr 2007)

... yesterday's rally brings the S&P to a 7 year closing high, above the Feb/Mar correction (a higher high). Probably safe to say the bulls are back in charge and the bears will be scampering back to their caves to lick their wounds and await the next correction.


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