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?
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.
“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!
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!
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.
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.
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.
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 * irrational exuberance*.
Better to wait for more info on whether the bottom is here/near.
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.
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.
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
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.
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.
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.
IMO (and I’m putting $$$ where my mouth is here on the HK market) this is the time to go in, when other people are panicking. I love it. Provided: a) you buy good quality stocks and b) are a long-term investor, not a speculator. The object of the exercise is to buy, buy and buy more - and one day live off the dividends.
Short term, it could go either way. But IMO (and I’m putting $$$ 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.
According to the Journal of Financial Planning, over the period 1926-2002 the P/E ratio of the S&P 500 has averaged 15.5x.
Barra.com 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 (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
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.