Stock p/e's at all risk and growth levels may come down further and stay down because investors may want quick and larger paybacks for investing in a future that's co-opted by extremists.
i would say that, even if you didn't have worries about anthrax attacks and whatnot on our own soil, multiples are likely to head back to the lows of the 1970s (SPX PE well below 10, bottoming around 7) over the next couple decades, due to many factors, any one of which is enough to bring about a serious bear market (e.g., demographics and the coming oversupply of sellers vs buyers as baby boomers retire, poor GDP growth, the coming shellacking of bonds as the dollar goes down the toilet, persistent high valuations today, the coopting of America's corporate equity by scumbag CEOs, poor earnings quality, overinvestment in stocks by the public, the historical reality that every bubble was followed by a commensurate bust and retreat to trough valuations, yada yada).
the stock market seems destined to go way down even without the help of Al Qaeda et al. what they will add to the long-term valuation equation is without precedent.
however, barring a catastrophic attack (e.g., something that kills more than 10,000 people in one go and forces evacuation of a major metro area), i don't think anxiety alone will bring down valuations or shorten NPV payback.
So by avoiding most stocks, investors might continue to drop p/e ratios to adjust for the additional risks that seem more possible and probable
remember that most investors are doing anything but avoiding stocks. whether you look at the historically low cash levels of mutual funds, the high investment participation of households (which hit a high in percentage terms last year, i believe, at around 52% of households having some stock ownership), or the allocation policies of institutional investors, they are all extremely heavily weighted toward equities, when compared to any other period in US history.
my preferred habitat, if that is the phrase, is to buy and hold value stocks. however, i think it is worth keeping in mind that in our country's worst economic period--the Depression--value stocks underperformed growth. mainly because more value stocks were fiscally weak cos that went belly up. |
