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Thoughts on the stock market - March 2020
Right now, DJIA has a P/E of 16.8 and forwand P/E of 15.1, whereas S&P 500 is at 20.1 with forward P/E of 15.8. Source: WSJ market Data If you ignore interest rates and inflation expectations--both of these influence valuations but depends on your macro call-- the market is not cheap. Long-term P/E is around 15. Trailing P/E is around 20% (Dow) to 40% (S&P500) higher than average. Forward P/E is in line with long term average but that assumes a strong V recovery. Consensus forecast is for profits to drop 1.2% in 2020. In 2008, it dropped 25.4% so current forecast is a very mild recession. Covid-19 coronavirus is not going to last more than a few months but these forecasts are still too rosy in my opinion. So I wouldn't rely on forward P/E. The richly valued (mostly tech or high quality) have not fallen much but the distressed ones have. So if you want to outperform in the long run, I think one’s choice right now is to: • Wait for market to fall another, say...
I've decided to listen to the numbers on this one, and I've recently bought DFJ, a small-cap dividend-weighted Japanese equities ETF. It is diversified & selling for below book value, so I am not terribly worried about capital losses.
ReplyDeleteI consider this a low-risk, but high uncertainty investment.
Hope you are are enjoying the new job, car, etc...
DFJ seems like the best for a "blind" macro bet like this. It seems less volatile than JOF and the dividend weighting should generate better returns in the long run (if fundamental indexes are superior to market-cap weighting.)
ReplyDeleteOne thing that I notice, if I look at the index that it tracks, is that the P/E is negative (meaning no earnings) while the dividend yield is a fairly respectable 2.4%. This could be due to unusual, one-time, poor, earnings but it could also imply that some companies are paying out divends even though they are'nt making any money.
Good luck with your pick. It's an interesting one for sure. My guess is that most of your gains or losses will come from the currency fluctuation.
Are you still overweight China (or at least emerging markets)?
MrParkerBohn: "Hope you are are enjoying the new job, car, etc..."
ReplyDeleteThanks for the kind words...
Well, it has been a couple of crazy weeks. Too early to say but I think the new job provides an opportunity for me to advance my career. The company and pay isnt' anything spectacular but it puts me more in a professional job role with opportunity to advance (hopefully.) I was kind of stuck at the prior place and I think this will put me on the right path.
I am still getting used to the new cycle... I have a get up a bit early... still not sure what is the best road to commute...etc.
As for the car, if you recall, I was importing it from America. Well, it's still not registered and ready to go. I need to install daytime running lights and that's turning out to be kind of expensive and slow (apparently the module needs to be shipped from USA.) The provincial registration office, like most govt offices, are only open during daytime on weekdays or in a tight window on Saturday and that's making it a bit difficult to get things done. To make matters worse, I also got a speeding ticket while driving the car back to Canada the week before. >:o grr... New York state troopers apparently have nothing better to do ;) ... it's my first speeding ticket and it's going to hurt my insurance a lot (New York and Michigan violations are counted as a home (Ontario) violation :( .) The speeding ticket sort of ruined hte experience a bit.
One of the things I miss (from commuting via public transportation) is the ability to read on the bus/subway. I used to read a ton of stuff, usually on the ride back home in the evening. I used to read the newspaper, investment articles, annual reports, etc. Now that I drive, I feel like I have lost 5 or 6 hours of reading per week. Some of my blog entries and ideas are from stuff I read on the way home or the day before. Right now, I lost that time, which allowed me to catch up on investment articles, read up on ideas, etc.
ReplyDeleteI valued the read on the commute so much that I was even considering buying an expensive e-reader (if they displayed PDFs properly--so far it's not so good.)
I need to figure out a new process for picking up that information or else I'm going to be hurt significantly when it comes to investing. As Charlie Munger has said, he hasn't met a smart person who never read--and that goes for investing too!
Right now, I'm wondering if audiobooks or text-to-voice (for articles) can sort of replace all that reading in the car. Graphs and tables will be missed but I am seriously looking at things like Audible subscriptions to The Wall Street Journal, or audio subscriptoin to The Economist, or stuff like that. All this is kind of expensive ($100+ for each, depending on what you are looking at)...
How about yourself? Do you take public transportion or drive to work? Do you spend a lot of time reading during the commute; or not really?
I drive my car to work, but its only about a 10 minute drive, so not really a 'commute'. Cultural differences are always interesting. For instance, about a third of the people I know have no access to health care, but almost everybody I know has a car.
ReplyDelete"<span>I drive my car to work, but its only about a 10 minute drive, so not really a 'commute'. Cultural differences are always interesting. For instance, about a third of the people I know have no access to health care, but almost everybody I know has a car."</span>
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I know what you mean. I live in a low-income area and, although we don't have healthcare issues here (it's socialized here,) I often wonder how some people can afford to have cars. Even working class families with 2 cars seems kind of expensive for the income. We are not talking about expensive cars but, nevertheless, you are looking at $5k to $10k on gasoline/maintenance/insurance/etc.
Cars are very expensive, especially the ones Americans and Canadians drive, but I think the structure of society essentially requires a car in most parts of America and Canada. Outside cities--and even within cities in some cases--you essentially need a car to get to work. The popularization of suburbia basically sealed the car culture. Other places like Europe, and certainly highly populated Asia, appear to be completely different with public transportation being more reliable.
You also see how much people depend on cars by noticing, during the financial crisis and recession, how some people were walking away from their homes but not defaulting on their car loans. People are literally choosing cars over homes (although the underwater mortgages were fairly large so it isn't a clean comparison.) Thirty or fourty years ago, or presently in Asia and other places, it would be ludicrous to imagine that people will walk away from their homes before losing their cars.
My portfolio is currently about 25% in emerging markets. I'm been trimming my exposure to EM as prices increased, but then this sector has done very well, so I actually have about the same percentage in EM that I did a year ago, even though I've sold a couple of positions (China GXC in August and India EPI in June)
ReplyDeleteI'm looking at China with interest, but haven't done anything yet.