However, given the current P/E this still implies it isn't overvalued and has still got plenty of headroom. Will be worth keeping an eye on
My logic from your quote would imply that the PE (forward) of 15.2 on the 9th October 2007 (see chart) wasn't overvalued either and would have me saying "no worries and keep buying stocks..."
Also.... at over 18 around the 1st Q of 2004 many PE forward effected investors would miss the entry of the decade opportunity by assuming the bear market is still operating when in fact it was in a bull market cycle correction.
PE (forward) shows little to no relevance as an indicator with the index when I overlaid it on the SP500 chart ...eh?..but what does a simple kiwi know compared with the big US financial gurus ..eh?
... Contrary to main stream media belief, research has shown that Economic (business) cycles and the sharemarket has a surprisingly poorish correlation overall...
Thanks for you post Hoop, was slow to reply - busy weekend! I've analyzed Winner's chart and, contrary to my original assessment, I think it does show that sharemarket bearmarkets start close to when the rate of growth of GDP is close to its peak. Which doesn't seem to fit your statement above, or are you saying they have a poor positive correlation? I gather that you are saying what it also says on that web page ( http://www.aheadofthecurve-thebook.com/04-01.html), that: "Businesses and investors must instead focus on leading indicators of rates of economic growth, particularly drivers of consumer spending, which represent the front end of the economic cycle."
Oops, maybe the forward looking eps is a bit optimistic.
In one report today For the moment, Wall Street is in the process of reworking its spreadsheets to price in slower global growth and lower corporate earnings for U.S. companies that do a large bulk of their business abroad
Oops, maybe the forward looking eps is a bit optimistic.
In one report today For the moment, Wall Street is in the process of reworking its spreadsheets to price in slower global growth and lower corporate earnings for U.S. companies that do a large bulk of their business abroad
Hmmm..yes I think so..Is the increasing rate of E in the PE Ratio finally becoming unsustainable???
This last 6 years of rapid rate of earnings growth deemed by many commentators a couple of years ago as "unsustainable" has up to now defied the laws of gravity ...
So.. this is something new in this 6 year old cyclic bull market cycle ...eh?
Hoop - I think that the ASX is now in a confirmed secular bull cycle. The previous secular bear looks like it did end in 2009
If RBA cutting interest rates indicates a stuffed economy than earnings may be under pressure. However unless the All Ords falls significantly that could see the PE rise even more .... confirming a continuation of this secular bull.
The NZ Stock market has been in a correction since 18th March...Looking at the NZX50 index chart it is not noticeable due to the dividends and weightings (smoke and mirrors)..but believe me there is a correction going on. There are lesser and lesser stocks holding the NZX50 index up and increasing stocks numbers are starting to bust their MA200 lines (one bear cycle measurement)...
Notice the many investors on ST wondering why their favourite shares are not meeting their perceived "realistic" values at the moment..
Using a Capital only index... The NZX50 portfolio capital index has lost 5% since 18th March.....The 2009 - present bull market cycle has been so strong that the chart below says it will have to fall another 15% to kill the bull.
I assume many NZ investors on ST have not experienced a bear cycle yet...If you feel pain at the moment with -5% then imagine the start of a bear cycle with another -15% ..This would make 5%+15% = 20% loss and would need a 25% gain to breakeven again...however a bear market doesn't end at the beginning they usually retreat an average of 50% which to a buy and hold investor would have to see a 100% gain to breakeven again...which in this example would take 7 years
Percentage Loss
Percent Rise To Breakeven
10%
11%
15%
18%
20%
25%
25%
33%
30%
43%
35%
54%
40%
67%
45%
82%
50%
100%
Another interesting thing is Investor behaviour..most new investors would never enter a market in doom and gloom and full of fear (near the bottom) but will wait and wait until all fear is gone and replaced by exhuberance and well being then enter the market when its party time (near the top) and apply a long term investment strategy as perscribed by the Gurus such as Buffett and Co
If you invest solely for the dividends (which are very attractive when the economy is humming) then entering the stock at party time an investor never expects or thinks about not to making any capital gain for the next 5 to 7 years as their mind is occupied by the possible (not guaranteed) future dividend stream and rosy looking forward looking Fundimentals .. The long term investor thinks of the "now" and fails to recognise the invisble long term cycle of events. If the Stock Market is in a generation long secular bear cycle then buying into boom will result in the long term portfolio suffering long term capital damage..
Is NZ stockmarket in a secular bear cycle? ...unfortunately for the NZ investor there is a lack of data due to the unhealthy protective nature of Stock brokers and analysts..Also, there has been so many switches and changes to indexing in NZ that a long term freely available historical indexing such as those overseas e.g DOW S&P500 FTSE etc is sadily unavailable for most NZ Stockmarket investors......
Why should we care about secular cycles?..If NZ stockmarket is in a Secular bear market then the chart below shows an ominious sign of a possible top event when it failed to push through a secular resistance at 1975..Although secular cycles use PE Ratio's not prices..Market price indexes during a secular bear cycle often (but not always) show a classic flat top cycle symptom... Why use this chart below?...Its capital methodologies are closer to the DOW S&P etc therefore giving a truer comparision when working with Capital indexes..
A snippet from Cam Watson at Craigs on NZ Super Fund reference Portfolio review
4. Recent returns have been exceptional. Over the past five years the Fund has returned 14% a year, “considerably ahead” of the 8.5% annual return they expected. In fact, the actual return of 14% is in the 85th percentile of the range of expected returns, i.e. it is very high. They concluded their discussion on past returns with a candid health warning that probably applies to all investors; “Along with these abnormally good periods, we also expect that there will be periods of abnormally low returns and we remain focused on the Fund’s returns over the long-term”. 5. They have cut their forecast long-term returns. The Fund last reviewed their expected returns in 2013. At this time their midpoint expected long-term return for the reference portfolio was 8.9%pa. They have reduced this expected return to 7.7%pa, due principally to a reduction in their expected return on cash from 6.0% to 5.0%. This lower cash rate also reduces the expected return on shares as the Fund uses a formula that calculates returns on shares by adding a return premium to the return from cash, so a lower cash return leads to lower returns on shares as well. This is another takeaway for all investors – the smart people are factoring in a period of lower returns ahead, perhaps we should too.
Originally Posted by winner69
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