When you make your living in and around the financial markets the most frequent question you will get is “Whats the market going to do?” or “Hows the market these days?” For a long time my stock answer ahs been “No Clue” but recently I have changed that up a bit. These days my go to response is “We can argue about whether the market is fully valued or overvalued but under no circumstances can we say it is cheap and represents an exceptional opportunity.” I am very fond of Chalrie Mungers observation that he didn’t get rich buying mediocre opportunities. The trick according the Charlie is to have lot s of cash when an exceptional opportunity passes by. Outside of the community banks I see fee exceptional opportunities in the current market.
You don’t have to take my word for it. A lot of folks that are a lot smarter than I am are telling you the same thing .The partners at Tweedy Browne have decades of experience and world for a firm that was one of Ben Grahams brokers back in the 1920s so I suspect they know a little something about valuation. In their second quarter shareholder letter they wrote” Anecdotally, there are a number of factors that suggest valuations are stretched in today's markets. While these factors are primarily associated with US markets, we believe the direction holds true in developed markets abroad as well. The S&P 500, the DJIA and the MSCI World Indexes hit all time highs earlier this year. Simple P/E ratios are at 18 to 19 times trailing earnings. The Schiller Cyclically adjusted P/E ratio is at 26 as compared to its historical average of 16. The Buffet Valuation indicator (total market capitalization/GDP) is at approximately 132 or nearly twice its historical ...
