02-13-2015, 09:54 AM
(02-13-2015, 09:40 AM)hendi_alex Wrote: Everyone surely knows my position now. It runs against the grain of continuous accumulation, of cost averaging over a long investing horizon. I like a bargains way too much to be paying full value or to be overpaying for shares of target investments.
What concerns me mostly right now, is that the P/E ratios are essentially smoke and mirrors where almost the entire market is frothy and beyond. There may be value in the energy patch, but there again, even after the sell off, shares of many of those are still far ahead of where they were even prior to the 2008/2009 market collapse.
To my way of thinking, P/E's are misleading, as so much of the profits are a result of very cheap money. When the Fed moves toward some degree of normalization of interest rates, that aspect of inflated profits will begin to bleed off. Couple that with a contraction cycle, and we could have a double whammy on the current lofty level of corporate profits, which are at present about 70% or more above the mean. What will it do to share prices if corporate profits simply drift back to the mean, or worse if recession comes and they dip toward the low end of the range?
Those concerns are what keep a large portion of my portfolio in cash and/or in very short term investments. I would certainly rather buy my shares at a strong discount to inherent value, and absolutely insist on buying them at significantly below today's lofty levels.
You bring up some good points. I think the cheap money phenomenon is a reminder to invest in quality companies with strong balance sheets. When/if the era of cheap debt passes away, the highly levered companies will take the biggest hit and give the stronger players an opportunity to pick up market share.
Growth is nice, but strength and stability is better.