Over the long holiday weekend, I was asked the same question in different settings by friends, neighbors and family members again and again. “Is the market going to go up or back down from here?”
Don’t get me wrong, it’s a nice change of pace from the big question from January and February, “Why would anyone ever be in the market ever again?” or “How much was your bonus, pig?”
That said, I hate the market direction question and I’m sick of it being debated on every street corner, on every economic or financial website and on business television day and night.
And then I came across Michael Santoli‘s column in Barron’s this week, Shell Game, and one paragraph in particular completely summed up how I’m feeling about the market these days. Santoli’s quip is not a tidy enough answer to deliver to my Poland Spring delivery guy the next time he asks me about the market, but I think you guys will understand (italics for emphasis are mine):
The market isn’t cheap, as measured by, say, the Dow industrials’ trailing price/earnings ratio above 40, or even the S&P 500’s P/E of 17 on 2009 operating-earnings forecasts. Some conservative valuations based on long-term normalized earnings settle around a fair value of 900 for the S&P 500 (we’re there now). Yet the median P/E of S&P 500 companies, based on 2009 forecasts, is 12.7,, meaning half the index is cheaper than that. The whole isn’t a bargain, but there are plenty of well-valued particulars.
OK, so the market is about where it should be, and not undervalued…but half the S&P 500 is notably cheaper than the heaviest-weighted names. OK, this is starting to feel constructive and purposeful again!
That’s exactly where my head is at right about now. I’m sick of the buy the index/short the index trade. The volatility was fun while it lasted, watching guys buy the triple long ETFs in the morning and fade the rally with the triple short ETFs in the afternoon, but the VIX is back down to 30ish and as BB King once sang, “The Thrill is Gone“.
I’d love nothing more than a range-bound market once again where the macro wasn’t all that mattered and a stockpicker could not only out-perform the broader averages, but beat the rest of the sector as well with good timing and well-done homework. The lockstep up-and-down thing has lost it’s appeal to me (and it’s profitability) as everyone is now doing the same trade. It’s crowded and boring.
I’ll let the rest of the blogosphere debate the concept of whether or not the market has seen the lows, has to retest the lows, will break new lows, is a bull market, is a bear market, is a cross-dressing wombat market….I’m so over that discussion.
Let the market do what it’s going to do, up or down, just please let it start to reward research and insight again.
The index trading thing is so five minutes ago, like Facebook or this little Adam Lambert girl that everyone thinks is cool (you will hate yourselves in 5 years and cringe, he’s a huge cheese).
Thanks for summing up my outlook and hopes for the coming market environment so succinctly, Santoli. I needed that.
Anyone else want to start picking stocks again? Let’s have some fun and make some money in ’09, bull or bear market.
Full Story: Shell game (Barron’s)
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