Excellent article, thanks for posting it.
I've been using Shiller's PE10 to gauge market valuations for a while. One of the consistent mistakes investors make, to to overemphasize recent trends in relation to longer-term trends, even though LT trends are always more accurate for predicting the future. So, it's just hard for most people to understand that, even after valuations have been falling for a decade, we are still (still!) only down to the top of the LT range.
If we don't slide back into recession, and if interest rates stay at current extremely low levels, then current market valuations are justified. If either of those change, then current valuations are a ceiling, not a floor.
One of the trends I see happening over the next 10 years, is a return to dividend investing. Once upon a time, long long ago, stocks had dividend yields greater than bonds. That's because stocks are more risky than bonds, and investors didn't expect much LT increase in stock price. As valuations grind ever lower, and stocks go sideways or down LT, good companies will realize the only way to prop up the stock price, is to pay a decent dividend. The fact that I can construct a portfolio of dividend-paying semis and semi-equips, shows how far along we are in this process. Another sign of the times: the dividend yield of the S&P500 is now greater than the interest rate on 10Y Treasuries.
I'll make a prediction: over the next 10 years, stocks that pay a dividend (yield averaging at least 2%) will outperform those that don't, in semis, and in the overall market. |
