James,
<<I've heard you give this argument before. It was last year at
Dow 7500. Why is it valid any more now than it was then?>>
> But, as you ask, why is my argument any more valid now than
> it was at Dow 7500? Thats a question that answers itself.
> The market is up 20% since then! That is at least
> two "normal" years of gains by historical standards within
> less than one year. And it was hardly a cheap market last year.
> I considered the market P/E then extended, and it
> was about 20 or 21. Now its 26 or 27.
First of all, there are numerous stocks that are
lower than they were last year. Almost all examples from
my previous post fall there. So the saying "market is up
20%" is meaningless especially from a value investor
who claims to buy companies and not market.
To take this argument to extreme, if tomorrow BRK.A fell to
$1000 per share while Dow climbed to 20000, would you
hold cash because "market is overvalued" and gonna crash?
For example, I am not buying anything because
I see a lot of companies as "weak buys" but not "screaming
buys". So I just see no compulsion to buy but this is not
dependent on the market level.
> And that was before Asia collapsed. Asia was
> the "growth story" at so many companies which now brag about
> how only 5% of their business is in Asia.
Yes, but now they can say that it's a cyclical
decline and PEs are irrelevant until next Asian pickup. :-)
> I am not selling the stocks I have with big long term gains -
> yet - because I don't want to pay taxes. But they're next.
> I had one of them jump 10% today. Its probably gone
> tomorrow. But if I owned Coca Cola at 10 would I sell it?
This is something that I find surprising. You would
sell something which is close to fair value but you would
hold a grossly overvalued stock for tax reasons?
Hmm... I guess, I had different ideas about value investing. :-)
> This is not fear - this is coldly rational.
I don't agree that it's rational.
What is a rational benchmark behind your claim:
> We are in a mania right now.
I interpret your position as follows: "Something
ticked me off, so I am selling. Hey, but I need a justification
for that. Let's see... Market PE is 26-27. Voila! Rational
explanation!" I'd regard your decision as rational if
you said: "I am going to sell company XXX when its PE is
greater than 26". Or even if you said: "I am going to sell
half of equities when market PE crosses 27". You say it
yourself: "I tried to explain it, but so much of it is gut."
Regardless whether your decision was rational or gut
feeling, I disagree with painting the market with "Mania"
brush. Definitely, there are excesses but I don't think they
warrant selling undervalued companies to get "safety".
BTW, I am not trying to talk you in changing
your mind. I am still trying to work out my investment
approach, and such discussions stimulate ideas about
overall strategies.
I agree with one of your reasons for selling:
you gonna sleep better at night. :-)
>Re: Asia. With a sophisticated institutional screen, it
> would take you about five minutes to find a profitable net-net
> in Japan.
Hmm. Could you give us some examples. I don't have
an access to institutional screens. May I ask why you are
buying some closed-end fund instead of buying these
net-net values in Japan? I would assume that the fund will
have worse performance than your personal selections.
Thanks and good luck
Jurgis |
