What do you think of the stock market?

[Debaser]

Are any other dopers out there getting bullish on stocks right now? IMHO, there is nowhere to go but up at this point. The economy seems to be strong fundamentally. It's only the actual stock prices that have fallen, basically in response to the unjustified P/E ratios that were a natural result of the technology boom of the past decade.

At this point, even if the "real economy" follows the stock market into a recession, there is no reason to believe that stock prices will fall much lower. They already have fallen, so in this case they would just not increase in value for a while.

So, it seems to be a safe bet to buy, buy, buy. I am gobbling up everything in site. Some specific pics that seem like bargains, and the always good move of buying index funds.

What say you, fellow Dopers? Is this the bottom? If not, how much further can it slide?

[jk1245]

Yep, things are looking up. The economy is fundamentally strong, as you said. Stocks (some of them, anyway) are being hammered by "irrational pessimism" the same way they were lifted by "irrational exuberence" five years ago.

What's the golden rule of the stock market, "Buy Low, Sell High" right?

Except everyone buys the hot stock that has been pushed way over it's reasonable value and then sells when it comes back to reality. In essence, they "Buy High and Sell Low".

I think this is about the bottom. It might go down another thousand, but then will hold and climb back up, though not to 12,000 for a long while, I think.

[cards]

"Buy when there is blood on the floor" is a favorite of mine. Hard to pick an actual bottom, but yes, P/E's look a lot more like the long term history right now. I'm going to see how next week shapes up and if it stays within 3% (up or down) of where it is now, I'm going to move some cash into an index fund - both dollars!

[Gatopescado]

I think I would rather shove glass shards into my pee-hole than mess with the stock market, because it is always the little guy who doesn't know what he is doing (thats ME!) that gets bent over and rammed hard.

My money is doing just dandy in real estate.

____________
She told me she loved me like a brother. She's from Arkansas, hence the Joy!

[El_Kabong]

Not that I know anything about it (just trying to keep my 401(k) from going up the spout), but I believe it is likely to continue to fall until at close to the end of August. Substantial upward movement maynot occur until after the results of coporations self-certiciation of their accounts are known. Otherwise as others have said, the economy is relatively sound and they should begin climbing again towards the end of the year.

Now we shall see.

[handy]

It's a great irony.

You buy because you think the stocks are going to be worth more, right? But someone has to
sell, so that person thinks the stocks going to be worth less.

Same with real estate. People say they are buying more real estate, but for that to happen,
an equivalent has to be selling. Shrug.

Never forget the market has these two forces.

[Crusoe]

I heard a phrase last night, but cannot remember it for the life of me: can anyone here help?

It was used by a stockbroker to describe the market when ill-informed investors, assuming a slump has bottomed out, start buying again, when in fact there is still a long way down to go. Basically it was a way to describe people who think they know when to buy but really don't.

Any ideas?

[samclem]

The reason that I personally would be hesitant to buy stocks at this point is that the risk isn't worth the gamble.

By that, I mean that no one knows if the bottom is truly here. You can want to believe that it is because P/E ratios are finally getting more reasonable and in line with history, but events have a way of doing what they want to.

I think we are in a period of deflation that has been happening for a bit over 2 years now. When the forces of deflation are loose, there is no telling where they will take you, anymore than trying to predict a top on a market driven by inflation or [/i] irrational exuberance[/i].

Better to wait for more info on whether the bottom is here/near.

I personally, unfortunately, say it isn't.

[ftg]

(Didn't we just do this?)

Is this the bottom? No one can pick bottoms for sure. I was quite certain about the Internet bubble peak, predicted a 3 month range and just barely covered it. But since there was so much irrational exhuberance that I didn't want to gamble on the market falling. (Which is really a high risk way of investing.)

There are 2 factors to me that suggests it might not be the bottom. First, corporate scandals. If P/E ratios are inflated due to more widespread fudging, then obviously things can get worse. Second, a lot of bad stuff is spreading out from the Internet bubble crash. The tech sector accounted for a tremendous chunk of growth in the economy in the 90's. And things are bad, bad, bad in tech land. Tech will not partially recover for a couple of years. Tech companies not buying stuff from non-tech companies, not hiring (and firing all over the place), etc. is just now starting to hit the rest of the economy. We could be ~3 months from the bottom. Or 1-2 years from the bottom.

There is a lot of investment money in boomers retirement funds. This money is looking for a place to go. Once things get cleaned up on Wall Street (important) it could flow back into stocks and capital investment and turn things around all on its own.

[Lorenzo]

Almost everyone seems to say the economy is fundamentally strong, but isn't unemployment still pretty high and consumer confidence pretty low? Given that consumers account for 2/3rds of US economic spending, I wouldn't hang my hat on this economy just yet.

Beyond that, US companies unleashed an unprecedented level of capital spending in the 90's that may not need to resume for a long, long time.

Too many US companies are presently trying to cost-cut their way to a profit and circling the wagons trying to protect their market share; none of that is conducive to expanding the US economy.

[handy]

On the news, they always have one person who says you should buy now & another
person that says you should sell now. They always balance out the newscast that way.

Remember when tech was around 5000 & people said now is the time to buy :-0

[Sam Stone]

P/E ratios are still quite a bit higher than the historical average (what is it right now for the market as whole? 32?). From that standpoint, there's still a ways to go down.

On the other hand, the fundamentals in the economy are still very strong. Anyone who remembers double-digit inflation, interest rates, and unemployment like we had in the 1970's and early 1980's will realize just how much better the climate is today.

On the other hand, after the accounting world has been shaken out and businesses re-organize around more accurate numbers, we may find that a lot of the wealth we thought was out there existed only on paper. In which case, stocks could head lower.

Finally, there's risk. We are, after all, at war. A major terrorist attack could be a hammer blow to the stock market. A dirty nuke which causes 500 billion dollars in direct damages in Manhattan and a few trillion in secondary damages would hammer the stock market, even if a lot of people weren't killed by it. If the U.S. goes to war against Iraq and gets mired in brutal urban warfare, consumer confidence could go down further.

If you can tolerate the risk, I don't think this is a bad time to get back into the market, speaking as a layman. Trying to time an absolute bottom is a losing game. My recommendation would be to find some strong companies that appear to be irrationally undervalued, and invest in them. But remember, the risk of investing right now is much higher due to the still-breaking news of corporate accounting shenanigans and the war. So don't bet the house.

[sirtonyh]

The market seems to be completely disconnected from the economic reality and trading purely on fear. I think some (actually many) stocks are cheap but given that the economy and earnings have almost nothing to do with price movements at the moment I think it is a dangerous time to buy. I'm waiting until something that resembles cause and effect (improving economy = rally, poor earnings = sell off) comes back to the market.

[Debaser]

Originally posted by Sam Stone
P/E ratios are still quite a bit higher than the historical average (what is it right now for the market as whole? 32?). From that standpoint, there's still a ways to go down.

This is an interesting point. Anybody know what the historical average P/E ratio of the market is? I never thought about it.

For the most part, I agree with a lot of the cautious, skeptical feelings in this thread. But, I am only 26, and am investing in the very long term. Stocks will rise in value before I sell them, 30 or 40 years from now. That is certain enough to bet on. So, having said that, it's better to be buying now than a couple of years ago.

It's funny. I never thought there would be an upside to me having "missed" the crazy economic growth of the 90's. (I was in college until 2000). I felt like I was missing out on it, and I knew the market would crash just about in time for me to join the workforce. But, at least I can take advantage of the lower stock prices.

[Sam Stone]

Here's a chart showing the historical P/E ratios for the S&P 500: http://www.lowrisk.com/sp500pe.htm

You can see a lot of noise on that chart, but just eyeballing it I'd guess that the average is somewhere around 20.

[handy]

PBS is showing one of my favorite films about the Stock Market, check your local listings,
"Trillion Dollar Bet"

[Enola Straight]

People must realize that the market is as the investorss make it:
it's only weak because money is being taken out.

I believe that the bottom is past and we're on the way back up,
so today I put$9,900 in my mutual funds.

:eek:


Ballsy? Stupid? I'll find out in a few months.

[Hemlock]

Originally posted by Crusoe
I heard a phrase last night, but cannot remember it for the life of me: can anyone here help?

It was used by a stockbroker to describe the market when ill-informed investors, assuming a slump has bottomed out, start buying again, when in fact there is still a long way down to go. Basically it was a way to describe people who think they know when to buy but really don't.

Any ideas?

Dead cat bounce?

One of my favorite expressions.

IMO (and I'm putting $$$ where my mouth is here on the HK market) this is the time to go in, when other people are panicking. I love it. Provided: a) you buy good quality stocks and b) are a long-term investor, not a speculator. The object of the exercise is to buy, buy and buy more - and one day live off the dividends.

[Hemlock]

Originally posted by Crusoe
I heard a phrase last night, but cannot remember it for the life of me: can anyone here help?

It was used by a stockbroker to describe the market when ill-informed investors, assuming a slump has bottomed out, start buying again, when in fact there is still a long way down to go. Basically it was a way to describe people who think they know when to buy but really don't.

Any ideas?

Originally posted by Crusoe
I heard a phrase last night, but cannot remember it for the life of me: can anyone here help?

It was used by a stockbroker to describe the market when ill-informed investors, assuming a slump has bottomed out, start buying again, when in fact there is still a long way down to go. Basically it was a way to describe people who think they know when to buy but really don't.

Any ideas?

Dead cat bounce?

One of my favorite expressions.

Short term, it could go either way. But IMO (and I'm putting $$$ where my mouth is here on the HK market) this is the time to go in, when other people are panicking. I love it. Provided: a) you buy good quality stocks and b) are a long-term investor, not a speculator. The object of the exercise is to buy, buy and buy more - and one day live off the dividends.

[cynic]

According to the Journal of Financial Planning (http://www.journalfp.net/fpajournal/jfp0502-art10.cfm), over the period 1926-2002 the P/E ratio of the S&P 500 has averaged 15.5x.

Barra.com (http://www.barra.com/research/fundamentals.asp) lists the current P/E at 39.84x. If we were to adjust this figure to reflect the costs of providing stock options, I think this figure could be as much as 10%-15% higher. Plus, there may still be some "fudging" of the reported earnings, but I have no idea what the extent of this is.

Historically, the stock market valuations have dipped well below their averages during bear markets. Using data from Yale University's Robert Shiller (http://aida.econ.yale.edu/~shiller/data.htm) (he uses 10-year trailing earnings as opposed to 12-month in calculating P/E), we can compare the current market to some previous bear markets:

Peak: June 1901, P/E=25.1
Trough: Dec. 1920, P/E=4.8
Duration: 19.5 years

Peak: Sept. 1929, P/E=32.4
Trough: June 1932, P/E=5.6
Duration: 3.8 years

Peak: Mar. 1937, P/E=22.0
Trough: Apr. 1942, P/E=8.5
Duration: 5.1 years

Peak: Jan. 1966, P/E=24.0
Trough: July. 1982, P/E=6.6
Duration: 16.5 years

Peak: Apr. 2000, P/E=43.3
Today: July. 2002, P/E=24.4
Duration: 2.3 years (so far)

Using history as a guide, it looks like we're nowhere near a "bottom" yet. This seems to be the consensus among numerous financial economists in academia. You can read more about the expected equity premium from the Association for Investment Management and Research (http://www.aimrpubs.org/ap/issues/v2002n1/toc.html).

[Doug Bowe]

Let's wait for October.

[Moonshine]

Aren't we all forgetting that past performance is no indication of future performance. What relevance do historical P/E ratios have, they certainly haven't been relevant in the bull market of the last five years. I've only seen two ways of making money in the market, getting in and holding your position for a long time, such as 7-8 years, or having so much capital at your disposal that you can speculate and move very quickly, such as in and out of a position in a matter of weeks.

[Crusoe]

Thanks Hemlock!

[Debaser]

Great post, cynic. It made me shiver.

However, whats up with the 19 year and 16 year numbers? I thought that the market always historically went up over time periods that long. That (again historically speaking) if you had a greater than 15 year time period, you never lost with stocks.

Well, I am going in. I have some liquid right now, and if I buy stocks that are only trading at a couple of times earnings I should get some bargains. I am also going into the nasdaq qqq index some more because I bet it is nearer the bottom (P/E ratio wise) than the Dow.

[Debaser]

I found an interesting page on the

Motley Fool's site (http://www.fool.com/DripPort/2002/dripport020725.htm)

Here is a quote:

When will the bear market end?
Since 1942, the average bear market lasted about 10 months, peak to trough, while about 35% of bear markets have lasted 1.5 to 1.8 years. After a bottom is hit, rebounding is usually a volatile, sporadic process. If we assume this bear market began in spring 2000, it's more than two years old, making it one of the longer bear markets in history. If history is any guide (there's always a chance history will mislead us), we can "expect" stocks to stop sliding in this dramatic fashion soon.


If two years is a longer bear market, I doubt the validity of a 16 year bear market in the 1960's.

[cynic]

The data I provided only covers long-term bear markets, which are usually referred to as "secular" bear markets (http://csf.colorado.edu/authors/Alexander.Mike/SecTrends.htm).

And in a recent interview, Warren Buffett (http://www.business2.com/articles/mag/0,1640,35731,00.html) mentioned that the stock market, as measured by the DJIA, made almost no progress (except dividends) for the period 17-year period 1965-1982.

DOW JONES INDUSTRIAL AVERAGE
Dec. 31, 1964: 874.12
Dec. 31, 1981: 875.00

[Debaser]

Damn. I have a degree in Finance and I had no idea that was the case.

[dal_timgar]

now i started a thread about worldcom but it seems to have disappeared.

personally i think the stock market concept is absurd but it exists so we deal with it. the Jan 30, 99 issue of THE ECONOMISTS had a cover story about internet stocks falling to earth. two years early. can't be sure a bubble is a bubble until it bursts.

so worldcom is an internet stock and they did something wierd with $4 billion and are now in bankruptcy. an audit is starting and will take months. the boobs on the tube say worldcom has $107 billion in assets, $30 billion in debt, 61,000 employees, 20 million MCI customers. on july 23 the stock was $0.20 but it had gone as low as $0.02 and $0.08, with 2 billion shares outstanding the company had gone down to a value of $40 million. how can a company with 61,000 be worth that little. the market is panicked.

$100 could turn into $5000 if the stock gets back up to $10. who can't afford the risk of loosing $100?

Dal Timgar

[LurkMeister]

What I know about investing and the stock market could be stuffed into a thimble and still leave room for a marble. For years I had all the money in my Thrift Savings Plan in the safe but low-yield government fund. For years I had been seeing the stock fund showing higher yields, and kept telling myself that I really should take the chance & move some of it. Finally I overcame my inertia and over the course of six months transferred almost all of it to the stock fund and shifted my deductions to buy into the stock fund.
A month later the market started to drop; I rode it out, following the theory that I was now "buying low" and would eventually come out way ahead. Instead, the value of my TSP kept dropping. I kept thinking that the upswing was just around the corner.
Two weeks ago I finally gave up and transferred everything into the government and bond funds, although I left the deductions still being invested in the stock fund.
So of course things are now going up. :rolleyes:
I'm starting to think I should arrange to have somebody pay me to stay out of the stock market to keep it from going back down.

[ftg]

dal_timgar, I (among others) responded to your WorldCom thread (http://boards.straightdope.com/sdmb/showthread.php?s=&threadid=127837). No disappearance.