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   Strategies & Market TrendsValue Investing


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To: Jurgis Bekepuris who wrote (56659)1/15/2016 2:45:39 PM
From: Bridge Player
1 Recommendation   of 72296
 
If you enjoy a board that is interested in the strictly fundamental portion of security analysis, the "ignore" function would seem to be an appropriate tool for you to use.

It really is pretty simple. You get to skip over everything you don't care to see, and others who enjoy varying viewpoints including (HORRORS) technical analysis still have the opportunity to see others points of view, on that or other issues.

You may now have the final word (which I know you will want, reminding me about the thread header) as I will no longer post to you, and Paul as always will have the final decision.

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From: Paul Senior1/15/2016 4:26:49 PM
5 Recommendations   of 72296
 
The next person who says "rsi", posts pictures of McClelland oscillator, says "oversold", says "double top" or uses the word "amazing" (if they're over 35 years old) is banished forever from here.

Just joking –– Lol.
=================================================
C'mon you guys. Don't you know Jurgis's humor by now?

Actually John P's post was pretty good, imo. Nice list of market headwinds. Positive mention of AMZN and GOOG. It is tough to compete with AMZN: maybe the stock should be looked at now after recent drops. Who knows?

I suspect we're all looking for some clue as to when (or if) the carnage will cease. John P's post gives some hope maybe (from a technical viewpoint) that we are very oversold and there's not "extreme" volume on the selling (so far?)

My main reason for trying to keep TA off the thread is to not have people post about specific stocks they like because the TA says they are a buy or a hold. I'd like to continue to keep this thread more in the Ben Graham vein.

TA's part of investing (or is it speculating?). Just hard to ignore it. Especially when times are tough and people want to know how bad is bad going to be. TA gets a prominant voice. Whereas, FA maybe might say, stocks are cheap and they could get cheaper. Who wants to hear that? More reassuring to say support levels are at such-and-such.

John P., if you read this, you're welcome here. How about posting some specific stocks (if more than AMZN or GOOG) that you like? Try to avoid giving us the TA reason you like them though!

Paul Senior,
moderator

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From: bruwin1/15/2016 4:39:02 PM
   of 72296
 
Phew !!! ... that's a relief !!! So it was all just a Big Joke ???!!!

For a while there some of us thought that maybe there'd be all that nukin' and bannin' and stuff .... not always that easy to tell when someone's a jokin' ...

Good to see sanity prevailin' ....

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From: Grommit1/15/2016 4:42:21 PM
   of 72296
 
Warren (if you are reading this) Ok I'll follow you into PSX. And I got some today at your price. ($77.90 and $76.87)

PSX buys





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To: Paul Senior who wrote (56662)1/15/2016 6:00:35 PM
From: E_K_S
1 Recommendation   of 72296
 
I was going back to the archives to see what some of the measures for "reasonable" S&P valuations are/were. Many of these measures look at some reversion to the mean (ie years and decades). I thought the attached article was very good to provide perspective.

Market Divergences

1. Valuations
Short-term price volatility is an opportunity, and high prices are a risk. The four valuation measurements falling into the inexpensive or fairly valued category are:
• Rule of 20: Stocks are considered fairly valued when the sum of the Standard & Poor’s 500 forward P/E ratio and the year-over-year change in the consumer price index (CPI) is equal to 20 (or inexpensive when it is below 20).
• Fed Model: This model compares the S&P 500’s earnings yield (which is the inverse of the P/E—or E/P) to the yield on long-term U.S. government bonds. Negative readings suggest favoring stocks over bonds.
• Equity Risk Premiums: These subtract either the forward 10-year U.S. Treasury bond yield or the forward Baa corporate bond yield from the forward S&P 500’s earnings yield (E/P). Positive readings suggest stocks are undervalued relative to bonds.
• Dividend Yield: Compares the current dividend yield on the S&P 500 with both historical averages and the 10-year U.S. Treasury yield. At near-equivalent yields, the market is seen as fairly valued.

The seven valuation measurements falling into the expensive category are:
• Forward P/E: Probably the most common measurement, it divides the current S&P 500 price by 12-month forward expected operating earnings. It is presently slightly above its ~20-year median of 15.9.
• Trailing P/E: Also a common measurement, it divides the current S&P 500 price by 12-month trailing operating earnings. It is presently comfortably above its ~25-year median of 17.8.
• Five-Year Normalized P/E: This model uses four years of historical earnings, two quarters of forward earnings, and takes the midpoint between reported and operating earnings (it is a take on Shiller’s CAPE, but with a shorter time span, and with an adjusted earnings calculation). It is presently comfortably above its ~70-year median of 18.1.
• Shiller’s Cyclically-Adjusted P/E (CAPE): This model uses an inflation-adjusted price for the S&P 500 and divides by reported earnings over the prior 10 years. It is presently comfortably above its ~135-year median of 16.
• Price/book: Divides the current S&P 500 price by the book value of its components. It is presently slightly above its ~38-year norm of 2.4.
• Tobin’s Q: Calculations are done by the U.S. government and the ratio’s readings are provided by the Fed. It is often called the Q Ratio and is the total price of the U.S. stock market divided by the replacement cost of all its companies. A high Q (greater than .85) implies overvaluation.

--------------------------------------------------------------------

My take away is I never have enough cash ready to deploy when these long term valuations present themselves and/or I Buy too early in the sell off.

I am using the SMA(200) weekly as my Buy point target. Note in 2008/2009 S&P sell off it was well below the SMA(200) weekly by almost 45%. That will put the $SPX around 1770 or about 110 S&P points which is about 990 DOW points lower from the current closing levels..

As my taxable portfolio has dropped over 20% in the last 90 days (very heavy in Oil & Commodity stocks), I am now sitting with over 10% cash. I would like to spend at least 50% of that in some good value stocks over then next weeks/months.

FWIW, I still keep all of my long-term gains inside the taxable portfolio. I still have several long-term holds w/ 100% or more gains and they pay good dividends too.

EKS

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To: E_K_S who wrote (56665)1/15/2016 7:19:27 PM
From: Grommit
   of 72296
 
congrats on the nice number 56665.

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To: E_K_S who wrote (56665)1/16/2016 12:45:01 AM
From: Paul Senior
   of 72296
 
I am using the SMA(200) weekly as my Buy point target. Note in 2008/2009 S&P sell off it was well below the SMA(200) weekly by almost 45%. That will put the $SPX around 1770 or about 110 S&P points which is about 990 DOW points lower from the current closing levels..


That seems to be a winning strategy so far. Not buying now based on waiting for your SMA target price is a tactic that beats my results so far of making many small buys as the market falls.

=====

• Forward P/E: Probably the most common measurement, it divides the current S&P 500 price by 12-month forward expected operating earnings. It is presently slightly above its ~20-year median of 15.9.• T

I don't know where buying will come in. My guess, maybe at S&P 15x forward earnings (assuming those earnings actually occur). That'd make the S&P at 118.5x15= 1778. That's comparable to the number you're using (1770) as a buy point target. 1880-1770=110. So maybe another 6% drop in S&P and other stocks.

On the one hand, that 15 p/e wouldn't historically mean that stocks are cheap, only somewhat below the median average, i.e. "reasonable", as you've said. Otoh, I believe with interest rates so low, we should expect stocks to be valued at a higher p/e than otherwise. I mean bonds offer safety, but not much yield, so as an asset class for money-making, stocks should pull us in. Also, the S&P is dominated by AAPL, GOOG, MSFT, XOM, WFC, JNJ, FB, GE, JPM, AMZN, WMT, PG, etc. There are so many mid-cap and small cap stocks though that have already fallen 20% from highs and/or that sell at relatively low p/e's (or other metrics) that I find them attractive at current prices (unfortunately also when they were at higher prices too--g-).

GLTA

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To: Paul Senior who wrote (56667)1/16/2016 10:47:17 AM
From: E_K_S
   of 72296
 
Identifying Value Buy points -

You are right, the S&P mean value range is just a target point but different sectors are/will become buys now or very soon. The Oil & energy sectors are well into that value area but who wants those stocks now.

I was looking at DIS and the buy point there using the SMA (200) weekly is at/near $76.00/share. Probably still 26% more possible downside. So the key is to also look at sectors during the sell off.

I also use the GN (Graham No.) calculator to provide me some measure of where fair value is. It uses past 10 years of earnings and stated BV. I suspect forward earnings may/could be a bit less if we have a mild recession, so GN values may not rise much in the short term

I am also looking at small caps that continue to grow and also pay a dividend as another area. Orchids Paper Products Company (TIS) is one I recently bought that I have been watching a long time. It still is fairly valued and the GN is at/near $20.00/share.

Successful stock picking but be patient.

EKS

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To: E_K_S who wrote (56665)1/16/2016 11:04:20 AM
From: Spekulatius
   of 72296
 
re valuation - the FED model is irrelevant. I think the better indicator are the high yield bonds. When you look at those, (JNK, HYG), they have performed even worse than the SP500 (down 7% last year )
ishares.com

The meltdown in the high yield (junk) bonds is very pronounced and often correlates with issues in the economy or predates them. Also remember the issues with the 3rd Avenue junk bond funds that eerily remind me of the issues in the bond markets seen early on in 2007.

I think the bond market has better opportunities than the equity markets right now - equivalent pot. returns, but with less risk. The main issue is much less liquidity. From a value perspective, the overall market is not cheap, especially considering the fissures in the economy, so one should be careful scaling in.

Very good discussion taking place here, imo.

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To: Spekulatius who wrote (56669)1/16/2016 11:09:23 AM
From: Spekulatius
   of 72296
 
Speaking of bonds, I bought a decent batch of NSS minibonds yesterday around $18.X. The are sub bonds for the NS MLP that convert to a floating rate (Libor plus 6.7% in 2018) , so there is no interest rate risk.

I figur that if things get tight, they will cut the distributing first and should have enough cash flow to pay their debt. FWIW, this is non investment grade, so do your own DD.

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