Coby. I really think we are talking about different things. Are you familiar with Benjamin Graham's concept of "Mr. Market"? The idea is that the market should be thought of as a partner that makes you an offer each day to buy from you or sell to you a share of business. Mr. Market is loony toons. Sometimes he doesn't offer you squat for your business and you ignore him and go on your way. Or perhaps you buy more from him. At other times, Mr. Market loses his bearings and offers huge amounts of money for your shares and if it gets high enough, you might elect to take him up on his offer.
I guess I am more of an skeptical observer of markets than you are. I ascribe value to the market independent of what my quote machine tells me. To look at a chart or a quote doesn't prove the rightness or wrongness of my theories or anyone else's. I have an opinion about what markets and stocks are worth. Mr. Market doesn't always agree with me. What Graham is about, and what all value investing is about is taking a company and deciding what that company is worth to you. After all it is your money that you will be investing. And after you decide what that company is worth to you, you have to compare that value to the price that is prevailing in the market. Graham advocates a margin of safety. So if you think a stock is worth 30, he doesn't suggest that you buy it when it is 30, but instead give yourself some margin of safety to allow for error and also to provide for profit when Mr. Market discovers the value of the stock.
Whenever I read your posts, I feel like you don't have that independence of thought about valuation. What are csco, or intc, or lu worth per share in your opinion? Why? How do you calculate those values? What is the S&P 500 worth to you? Would you pay these levels for these stocks. Just turning the clock back a month or two and saying "See, it proves it" whatever "it" is, isn't what I am trying to do.
From my frame of reference, stocks are vastly overvalued. And the best companies' stocks are among the most overvalued. CSCO, DELL, LU and others are beautiful companies but the prices are outside my measure of value and considerably outside my margin of safety.
But I also recognize that different investors have different time horizons, different strategies, different theories, different needs, etc. I don't say my assessment is accurate for you for example.
Back to the point I was trying to make is that it is apparent to me that the vast valuation has to do with the distribution of stocks to baby boomers with the idea that they have no alternative means of providing for their retirement. The notational and not actual value of stocks has soared "proving" the correctness of the Wall Street message. I am suggesting nothing about the last four months or the next four. What I am suggesting is that when the age demographics lean the other way and more are withdrawing than are putting in, these high valuations will vanish before all can find the retirement exit from the market. |
