Some investors want to follow the advice of the financial companies that manage their 401-K accounts, and they show up once a year to tell you how to manage your money.
They talk to you about asset allocation over bonds, stocks, and international, rebalancing occasionally (once a year), and holding for the long term.
Many employees follow that advice, and are pretty happy with it, until a crisis hits, like the Dot Com bust in 2000 - 2002, and the financial crisis of 2008. They they wish they had sold out sooner than they did.
In my blog, once a month I take a long term view aimed at helping these investors sidestep a crisis before too much damage is done.
From today's blog entry:
"The first fact I check is the PE on the S&P 500, which is sitting at 24 for Q2, with 96% of the stocks reported for Q2. In general the stock market is overvalued on the basis of the 12 month trailing earnings GAAP PE. We have seen this condition exist for years, so it is not a short term indicator at all, except to keep your guard up.
The candidates for president are making all sorts of promises that they won’t keep, because that is what presidential candidates do. There is always a congress to prevent them from doing the most outlandish things, unless we keep electing outlandish congressmen. But I don’t expect a major impact on the markets regardless of who is elected.
Oil has rallied from its lows earlier this year and is bouncing between 40 and 50. That is pretty good, high enough for the oil companies to make money, and low enough for consumers to enjoy driving around.
The economic statistics are stable and show slow growth. The initial read on Q2 GDP was light at 1.2%, following the Q1 reading of just .8%. That will keep the Fed on the sideline for a Sept. rate hike. The market seems to like it when the Fed is not tempted to raise rates, but it is kind of crazy that it also means the market likes a weak economy, which is not supposed to be true. Just think about that for a while.
The Q2 earnings reporting season is mostly over, with most firms meeting or beating expectations, but the weakness here is how LOW the expectations were. If you set the bar low enough, anyone can get over it. We’ll beat last quarter’s earnings, but not last year’s earnings in the same quarter. It is a primary reason that stocks are not going up, because earnings are weak.
We’re seven years into this recovery, so we’re late in the game, in an overvalued market on a PE basis, with weak GDP growth and poor earnings. Wow, that doesn’t sound too good to me.
The CNBC analysts all say that TINA is at work. In other words, regarding stocks, “There Is No Alternative”. Bonds don’t offer a decent yield. But, there is an alternative, and that is cash. Another alternative being discussed these days is gold, which is usually held as a hedge against inflation. I always say, buy what you know. If you are familiar with the gold market and can write down a couple of paragraphs about what moves gold, where we are, and make a case to yourself, I don’t have a problem with owning a small position in gold. If you don’t understand the market, you’re probably should stay out. "
There is a little more in the blog, including a 10 year chart of the DJIA.
Once a month I do a similar update on the Long Term View in my blog at http://RichInvesting.wordpress.com
Edited by Rich C, 24 August 2016 - 09:21 PM.