At 27.6 the Crestmont price to earnings ratio for the S&P 500 is 98% above its historical average (arithmetic mean), putting current stock valuations at the 98th percentile of this 140 years+ series, second only to the tech wreck top in 2000. See the yellow “We are here” dot indicated in this big picture chart from Doug Short below.
Not in Kansas anymore folks…holders of equities are snoozing inside a house that has been sucked into a Fed induced tornado, and is now swirling ’round in the sky.
Don’t be distracted by all the sell side jockeys assuring everyone that the house can swirl indefinitely. As reminded by 720 Global’s Michael Lebowitz last week:
Thoroughbred race horses occasionally wear blinkers so their focus is on the track in front of them and not on the horses around them. Our simple advice; wear blinkers. As difficult as it is, make intentional efforts to ignore the commonly uninformed chatter of friends and colleagues and the self-serving guidance offered by Wall Street economists and the media. Do your own homework and make sure your clients understand the value of your independent analysis.
Value investing, when done objectively, offers a strategy for investors to ignore the herd. The best in class understand that wealth is preserved by avoiding losses. They are not beholden to trends or momentum, nor are they distracted or obsessed by others investments. They simply have the courage to divest of or shun assets priced above fair value in the midst of euphoria.
Although it seldom attracts the praises of the crowd, great investors who follow this simple courageous strategy do so with confidence in a favorable outcome.