RE-->Because in the end, valuations matter. Business is pain.<< Unfortunately, or maybe fortunately for the people less gifted, stock market profits are only partially based on valuations. Luck and skill both play a role in the market.
You can go broke being right (short an "overpriced" stock like DELL or one of the other new-era Nifty Fifty and you're on the way to the poorhouse).
Valuation is in the eye of the beholder.
Even when there is outright fraud in a company, unless you are right in your timing, if you get overextended, you can easily be wiped out, or at least forced out of a losing position that will someday become a winning position, without your participation.
Whether CSCO, GE, DELL, etc. will be the fabulous winners in the future they have been in the past, is anybody's guess. But for those who were lucky/shrewd enough to bet on them in the past, the returns have been fantastic.
Whether the big caps outperform or underperform over the next few years, the New Era Nifty Fifty are probably as good a bet as any sector/group/industry/whatever. If the Nifty Fifty do crack seriously, it would very probably be a part of the entire market cracking, and no matter what stocks you are holding, you will be suffering on your stock portfolio.
Caution makes sense. But being paranoid? And talking about value? What value is there in a stock market at DJIA 9000? You kind of have to twist the value equations to justify being in the market at all.
Ben Graham said that value equations work in hindsight, but once you get to the current market, value equations kind of lose their value. (I'm putting it very loosely, and he was talking about using simple ratios to determine how much of your money in stocks versus bonds).
Even if economics and value are dismal, you shouldn't let it get you down.
Regards, and best wishes,
Larry the Cheerful |
