I guess if, on the stock market threads, one can occasionally inject some levity, on this thread, one can occasionally inject some seriousness about the stock market.
I am very disturbed at the pervasive emphasis on short-term trading that one finds on so many of the threads. Burton Malkiel and others have done carefully documented studies that show that almost no one makes money this way, even in a rising stock market. People may do well for a while, but as with commodity trading, virtually everyone who does it ends up losing money.
I am also disturbed because there has never been a time, including even 1929, when by every measure that has ever meant anything, the U.S. stock market as been as overvalued as it has been recently. For the U.S. market the historical average for dividend yield has been closer to 4%--or even higher--than the 1.8% or lower that it has been recently. For price-arnings rations the historical average has been about 12% as opposed to nearly double that now, and at the bottom of bear markets it gets as low as 7% for all stocks averaged. The ratio of price to book value for American stocks is 5, whereas st the bottom of bear markets one can find stocks selling for less than book value. And the list goes on and on.
All this gives a picture of a huge stock market bubble.
To illustrate what I consider a prudent position, let me give the allocation for my wife's IRA account. It is 55% (originally 50%, but they have appreciated a lot) in treasury strips for November, 20013. If these bonds go up much more I may sell them and simply put the money into a government security money market fund. About 18% is in BEARX, the Prudent Bear Fund, which has a portfolio of short positions and goes up when the market declines. About 15% is in stocks of smaller exploratory oil and gas companies. About 10% is in precious metals mining and a precious metals closed-end fund. A small amount is in cash.
That portfolio has steadily appreciated over the last few months, with losses in one sector overcome by gains in another. In a severe market decline it will actually gain.
Stocks are certainly the best long-term investment. I remain optimistic about stocks, but not for the next few years. Except that with some of my own money I am about to go into Korean stocks, if only the Matthews Korea fund will send me the paperwork. (I am also very heavily into BEARX, oil--unfortunately for now--and a little precious metals)
I think most people would be best off now with most of their money in the bank, so as to have something to invest when stocks are a much better buy. Anyone who wants to speculate on a declining market can use BEARX without the risk of shorting one single stock or watching an option expire worthless.
Now I promise never again to mention any of this on Rambi.
Alexa, will you ever speak to me again? |
