Would you buy in a bull run?

Voyager2002

Related to the question about whether to exit a market in a bull run:

Supposing a sector has performed strongly: is it sensible to buy into it in the hope of further gains, or avoid it on the basis that it has become over-priced? A specific example: at the beginning of the year I wanted to move into Asian equity, but my bank wouldn't let me withdraw from my cash ISA (long story). So now I am about to take the plunge, but notice that, for example, the Templeton Asian Growth fund is growing so rapidly that while Morningstar still shows a price-earnings ratio of around 11, it has actually increased beyond 14 since Morningstar was last up-dated. There must be some level where it is simply a bubble, and best avoided. What are the signs indicating that a sector like this is over-priced in terms of its long-term value as an investment?

getzegold

Voyager2002 wrote: »

Related to the question about whether to exit a market in a bull run:

Supposing a sector has performed strongly: is it sensible to buy into it in the hope of further gains, or avoid it on the basis that it has become over-priced? A specific example: at the beginning of the year I wanted to move into Asian equity, but my bank wouldn't let me withdraw from my cash ISA (long story). So now I am about to take the plunge, but notice that, for example, the Templeton Asian Growth fund is growing so rapidly that while Morningstar still shows a price-earnings ratio of around 11, it has actually increased beyond 14 since Morningstar was last up-dated. There must be some level where it is simply a bubble, and best avoided. What are the signs indicating that a sector like this is over-priced in terms of its long-term value as an investment?

A P/E of 14 isn't in bubble territory by a long way, maybe their just a bit slow updating. Any PE below 15-20 is considered good value.

Loughton_Monkey

Same question as "Would you sell in a bear stampede?"

Look at any share/fund/index/sector as a graph over 1 month. Now look at it over the year. Now look at it over 5 years. Then again over 10.

All those little wrinkles you saw on the first graph are still there, but you can't notice them. Like a boil on the elephant's backside.

So, to answer a question with a question. Are you a trader or an invester?

Voyager2002

Loughton_Monkey wrote: »

Same question as "Would you sell in a bear stampede?"

Look at any share/fund/index/sector as a graph over 1 month. Now look at it over the year. Now look at it over 5 years. Then again over 10.

All those little wrinkles you saw on the first graph are still there, but you can't notice them. Like a boil on the elephant's backside.

So, to answer a question with a question. Are you a trader or an invester?

Investor, rather than trader.

However, someone who bought at the top of the boom around ten years ago would still be looking at a loss, even now. I would prefer to avoid that kind of outcome.

Loughton_Monkey

Voyager2002 wrote: »

Investor, rather than trader.

However, someone who bought at the top of the boom around ten years ago would still be looking at a loss, even now. I would prefer to avoid that kind of outcome.

FTSE not necessarily a true comparison. £10K in Invesco Perpetual UK Growth invested end 2000 would be worth £14.4K now. About 3.7% annual compound.

But the point is, yes it's certainly possible to 'outperform' by selling at the right time and re-investing later, or elswhere. But you need to make the right call at the right time. Get it wrong and you will underperform.

bendix

I never worry about this sort of thing. At the end of the day, that's why I pay 1.5% annual management charges for people with more time and energy and expertise to make these decisions for me.