Every asset is valuable at the right price.
What’s the right price is one of the most difficult questions to answer when it comes to investing. We can try to forecast cash flow, margins of safety, operating margins, macro economic conditions and interest rates. It just gives us insights into what things might be worth in the future.
The data of late has been ok – not bad but ok.
However the equity market appears to be going down. Why – price.
Most of the US equity markets are trading at the high end of normal valuations.
You can see them in the following flikstak:
Margin debt is high, Shiller PE is high, Tobins Q is high, stock buybacks are high.
Just because the valuations are high doesn’t mean the market is going to crash.
What is does mean, is that we should be cautious and patient. It may take some time but eventually the prices will come down. It may be painful to wait in cash but it is less painful then a large loss.
Bye for now.