"I don't buy this circular reasoning: stocks will go up because people are pouring money into the market. People are pouring money into the market because..... stocks keep going up."
This is exactly what is happening, whether you buy it or not. We are seeing speculative excess of the most grotesque kind. This does not mean you can predict when the market will drop, and it doesn't mean you will be better off on the sidelines, especially if you think amat will eventually hit 3 figures.
There is a big disparity now between business valuations and market valuations. I see communications companies being wholly bought for 6x revenues while similar companies which are public are selling for 15x revenues. But this has gone on for 3-5 years now. You have to decide whether are you an investor and you are going to ignore the noise, and take a look at the scoreboard 1 or 2 times a year as it suits you, or are you going to be a speculator, and your attitude about the companies you own will be driven by stock market quotations?
At some point, we will see 1974 type valuations again. But look at this: if the e on the dow are 430 this year, which looks conservative, and because of demographic "investing" by boomers AND low interest rates a pe of 22 on the dow is very realistic and not very out of line, a dow of 9500 is justified by year end. I said this same thing 10 weekends ago, with little response from the legions here.
Let me make my own stance as clear as I can, as if anyone cares: The market is overvalued. People that I personally know are morons are investing and making money. It sickens me to read the drivel written on some of these threads, by folks who are probably making money in the market. How could they lose? So now they think they are informed so they invest more. My accounting pals tell me stories about 2nd mortgages and full credit cards. Oh, these folks aren't margined in their brokerage account, just on their personal lines of credit. I know of one fellow who has averaged 50% per year for 10 years but lost money last year, hard to do, as he got caught up in speculations encouraged by a broker. The market is overvalued, but being driven by a public that is being trained to pour money in to the market. So don't be surprised if that the feeling of nausea you have, if you are like me, gets much worse. When Buffett quit in disgust in a similar environment in 1969, his rebirth took 4 years. Can you sit out 4 years? I can't. I am staying in the game for now, but have now cut my margin to 10%, my lowest since the summer of 1990. I am clustered in 4 main stocks, playing around with several others. |
