Saturday, February 21, 2015

How Important are Valutions? VERY

Just to reaffirm my stance, I believe that any underlying investment can be a good or bad one, and the determining factor of success or failure is the price that we pay for the said investment.

If we buy it at good valuations, odds of success if greater. If we buy it at high valuations, odds of success is lower.

Regardless of how good any investment is, I don't believe we should sign a blank cheque for ownership of it.

I was just reading this article by John Hussman from Hussman Funds and it again reminded me just why valuations are so damn important.

It doesn't matter what sort of valuation model or method you use, they ALL pretty much will tell you the same thing. Buying cheaper is better. Buying more expensive is bad.

The model that Hussman uses now estimates the subsequent total 10 year annualised total returns of the S&P500 to be 1.4%.

That's right. If you're investing for the long run, you're better off over the next 10 years with a 10-year bond. The US10Y is yielding 2.13% now.

Let that sink in for a moment.

An array of valuation models are saying that the US stock market is so absofuckinglutely ridiculously priced that over the next 10 years, bonds will outperform stocks by 70bps a year.

Let that sink in for another moment.

1.4% means that rolling fixed deposits year after year would probably beat the stock market.

Which is more scary at this point right now, the Fear of Missing Out (FOMO) or the Fear of Holding the Bag (FOHB)?

While I don't know how much more extreme valuations will run, I can confirm plus chop money back guarantee 2 year warranty that this one way route to the moon doesn't last forever. It's gonna be ugly.

No comments:

Post a Comment

Observe the house rules.