I was reflecting today over the words in Intelligent Investor (chapter 8, page 193) about the market as DOW cross the 20K market.
"Nearly all the bull markets had a number of well-defined characteristics in common, such as (1) a historically high price level, (2) high price/earnings ratio, (3) low dividend yields as against bond yields, (4) much speculation on margin, and (5) many offerings of new common-stock issues of poor quality.
My view:
(1) Yes. Quite clear, as market (both S&P and DOW are hitting new highs within months, the market seem to get at all-time highs, not one time it has been repeated with new highs.
S&P 500 New high, DOW & S&P hits new high
(2) Yes. According to multpl the S&P 500 P/E ratio is high, extremly high.
We have to go back to 2008/2001 to get similar P/E. In my opinion (argue against it), many of the recent earning reports seem to fall behind expactions..., IMO not justify the high price level that exists for many companies.
S&P 500 P/E ratio (multpl dot com)
(3) No (as I understand). It seems to me that the the yield on equities are still higher than bonds. However different sources that I have come across gives the indication that there are a tiny gap between the equity yield vs bond yield.
Performance Divergence: Equity vs. High Yield, Div yield higher than bond yields
(4) Yes. According to margin data, the debt on margin seem to increase steadily. For me it seems understandably that the low interest should spur the incentives to borrow money. With the market going higher there should be an appetite to buy stock with low cost borrowed money.
(5) Yes/No. There has been a quite steady increase of IPO's until 2014. I want to believe that the presence of Alibaba's introduction to the NYSE, helped this year tremendously. Making it one of the biggest IPO's should have give incentives to other companies to go public. During the later years, 2015-2016, it seems to have been a decline in IPO's. However the latest report of IPO's 2016 see the 2017 as a bright year for IPO's.
I would love to hear other opinions if you agree or disagree. As I'm struggling to find values in this market and having problem to emotionally be discipline (stay calm and not buy, as I think to many indicators says that the market very high/overvalued).
Happy investing
//Wiz |
