Covid crash #2 started

TBC15

Well that’s enough excitement for me SSON gets bought tomorrow.

Another_Saver

itwasntme001 said:

Prism said:

noClue said:

Agree with you two, cape is just one measure...

what are the alternatives. would be interested to know....

I'm not sure you can use the other ratio's as a market level assessment as it would require someone to calculate and average it. For example Macrotrends can give you ratio's like Free Cash Flow Yield and the various revenue/profits stats over a given time period. There are some custom calculations you can do like ROCE and ROIC but I doubt that many are collecting that together for a market average.

Then you have the investors who are basing the valuations of individual companies on 10-20 year predictions of growth - all that gets factored into the price and therefore the CAPE.

Oh and even if you do use CAPE or PE then I'm not convinced you can rely on the E (earnings per share). When a company buys back its own shares, as many US companies have been doing over the years, the earnings per share goes up and therefore the PE ratio goes down. Nothing inherently wrong with that, but it does mess up the ratio somewhat.

I am not so sure that buybacks distorts the use of PE or CAPE.  Buybacks are simply just reinvestments back into the business at the required rate of return for its equity shareholders.  Not much different to investing the earnings (more accurately its free cash flows) into capital investments or other specific projects.  The price of the stock (and thus the PE) reflects whether or not these reinvestments (whether buybacks or otherwise) are expected to deliver higher rates of return on equity over time.  For example, to make it worthwhile, buying back stock for Microsoft at today's level using debt would require a return over and above the cost of debt (ignoring any tax advantages of the use of debt for simplicity) plus the equity required rate of return (= cost of equity).  Failure to meet this would have proven the buybacks as damaging to existing stock holders.

Shiller has started to publish a payout adjusted CAPE, but S&P payouts have been at their ridiculously low level for 30 years, and it doesn't seem to make a difference.

http://www.philosophicaleconomics.com/2015/03/payout/

http://www.econ.yale.edu/~shiller/data.htm

Personally I don't trust earnings figures, but I don't see why they should be any less fraudulent today than historically. The dividend yield is I think more reliable - dividends can't be misreported and tend to grow more steadily than reported EPS - and I worked out that the dividend yield, for both the UK and US is a reasonable "baseline" predictor of the next 10 year's real total return whereas the PE is next to useless, and the PB is questionable given the changing nature of assets, transition from tangibles to intangibles, sector differences (a cruise line would count customer deposits as an asset, a bank a mortgage, an insurance company...) and change in sectors over time.

newatc

I have to admit that when the lockdown news appeared on the weekends (after markets closed) I thought the FTSE250 would take a big hit today. I don't why I'm surprised though as I've been wrong on markets so many times before!

Shocking_Blue

Having a core of passive multi-asset balanced funds l'm adopting a 'don't do something, just stand there' approach. Recently put a few £ into tech and small businesses funds, which are both down %wise, but will also leave as is. Will buy in further after good covid news. Assuming that's sensible for novice level (non)response to the current markets situation

itwasntme001

Another_Saver said:

itwasntme001 said:

Prism said:

noClue said:

Agree with you two, cape is just one measure...

what are the alternatives. would be interested to know....

I'm not sure you can use the other ratio's as a market level assessment as it would require someone to calculate and average it. For example Macrotrends can give you ratio's like Free Cash Flow Yield and the various revenue/profits stats over a given time period. There are some custom calculations you can do like ROCE and ROIC but I doubt that many are collecting that together for a market average.

Then you have the investors who are basing the valuations of individual companies on 10-20 year predictions of growth - all that gets factored into the price and therefore the CAPE.

Oh and even if you do use CAPE or PE then I'm not convinced you can rely on the E (earnings per share). When a company buys back its own shares, as many US companies have been doing over the years, the earnings per share goes up and therefore the PE ratio goes down. Nothing inherently wrong with that, but it does mess up the ratio somewhat.

I am not so sure that buybacks distorts the use of PE or CAPE.  Buybacks are simply just reinvestments back into the business at the required rate of return for its equity shareholders.  Not much different to investing the earnings (more accurately its free cash flows) into capital investments or other specific projects.  The price of the stock (and thus the PE) reflects whether or not these reinvestments (whether buybacks or otherwise) are expected to deliver higher rates of return on equity over time.  For example, to make it worthwhile, buying back stock for Microsoft at today's level using debt would require a return over and above the cost of debt (ignoring any tax advantages of the use of debt for simplicity) plus the equity required rate of return (= cost of equity).  Failure to meet this would have proven the buybacks as damaging to existing stock holders.

Shiller has started to publish a payout adjusted CAPE, but S&P payouts have been at their ridiculously low level for 30 years, and it doesn't seem to make a difference.

http://www.philosophicaleconomics.com/2015/03/payout/

http://www.econ.yale.edu/~shiller/data.htm

Personally I don't trust earnings figures, but I don't see why they should be any less fraudulent today than historically. The dividend yield is I think more reliable - dividends can't be misreported and tend to grow more steadily than reported EPS - and I worked out that the dividend yield, for both the UK and US is a reasonable "baseline" predictor of the next 10 year's real total return whereas the PE is next to useless, and the PB is questionable given the changing nature of assets, transition from tangibles to intangibles, sector differences (a cruise line would count customer deposits as an asset, a bank a mortgage, an insurance company...) and change in sectors over time.

The funny thing is over different periods of time historically, investors seem to look at different things which drives a particular style of investing to out-perform.  In the past it was book value (favourable for physical asset rich equities).  Now it seems to be free cash flow (favourable for quality growth).  What will be next?

Prism

itwasntme001 said:

Another_Saver said:

itwasntme001 said:

Prism said:

noClue said:

Agree with you two, cape is just one measure...

what are the alternatives. would be interested to know....

I'm not sure you can use the other ratio's as a market level assessment as it would require someone to calculate and average it. For example Macrotrends can give you ratio's like Free Cash Flow Yield and the various revenue/profits stats over a given time period. There are some custom calculations you can do like ROCE and ROIC but I doubt that many are collecting that together for a market average.

Then you have the investors who are basing the valuations of individual companies on 10-20 year predictions of growth - all that gets factored into the price and therefore the CAPE.

Oh and even if you do use CAPE or PE then I'm not convinced you can rely on the E (earnings per share). When a company buys back its own shares, as many US companies have been doing over the years, the earnings per share goes up and therefore the PE ratio goes down. Nothing inherently wrong with that, but it does mess up the ratio somewhat.

I am not so sure that buybacks distorts the use of PE or CAPE.  Buybacks are simply just reinvestments back into the business at the required rate of return for its equity shareholders.  Not much different to investing the earnings (more accurately its free cash flows) into capital investments or other specific projects.  The price of the stock (and thus the PE) reflects whether or not these reinvestments (whether buybacks or otherwise) are expected to deliver higher rates of return on equity over time.  For example, to make it worthwhile, buying back stock for Microsoft at today's level using debt would require a return over and above the cost of debt (ignoring any tax advantages of the use of debt for simplicity) plus the equity required rate of return (= cost of equity).  Failure to meet this would have proven the buybacks as damaging to existing stock holders.

Shiller has started to publish a payout adjusted CAPE, but S&P payouts have been at their ridiculously low level for 30 years, and it doesn't seem to make a difference.

http://www.philosophicaleconomics.com/2015/03/payout/

http://www.econ.yale.edu/~shiller/data.htm

Personally I don't trust earnings figures, but I don't see why they should be any less fraudulent today than historically. The dividend yield is I think more reliable - dividends can't be misreported and tend to grow more steadily than reported EPS - and I worked out that the dividend yield, for both the UK and US is a reasonable "baseline" predictor of the next 10 year's real total return whereas the PE is next to useless, and the PB is questionable given the changing nature of assets, transition from tangibles to intangibles, sector differences (a cruise line would count customer deposits as an asset, a bank a mortgage, an insurance company...) and change in sectors over time.

The funny thing is over different periods of time historically, investors seem to look at different things which drives a particular style of investing to out-perform.  In the past it was book value (favourable for physical asset rich equities).  Now it seems to be free cash flow (favourable for quality growth).  What will be next?

I agree, which is why talk about bubbles and valuations seems a bit overdone. I just invest regularly and let the fund managers work out if the price of something concerns them. 

London7766551

Prism said:

London7766551 said:

I say the market will crash 60% by the end of January.  There you go a prediction and that would be a real crash! Also said it a month ago or so in the house crash thread. I stand by it and will happily get egg on my face.

We can all make random statements about the future. So, have you sold all of your investments then in preparation for the big crash?

csgohan4 said:

London7766551 said:

I say the market will crash 60% by the end of January.  There you go a prediction and that would be a real crash! Also said it a month ago or so in the house crash thread. I stand by it and will happily get egg on my face.

when one predicts it will rain, it will eventually.... 
It's like Crashy' s predictions of a housing crash for years. Even though there was a dip recently, it was due to circumstances no one could predict, covid.

It is not so much random, although it may as well be as I am not qualified to make an accurate prediction. However if you employ common sense, it would seem to be that the market reaction is delayed. Eventually the **** will hit the fan. People are still in dreamland. 

Lots of people are making predictions yes, and I am pinning a deadline on my prediction. I said the same prediction a month ago and I say it again. I think the market will crash big time, by the end of Jan 2021. As I say I am happy to look an idiot come Feb 1st, just letting my gut speak here.

I can only speak for the London property market but at least in my area, there are far more properties on the market and their price is falling, although some sellers are not budging yet and trying to get pre covid price.

London7766551

Sailtheworld said:

London7766551 said:

I say the market will crash 60% by the end of January.  There you go a prediction and that would be a real crash! Also said it a month ago or so in the house crash thread. I stand by it and will happily get egg on my face.

What market? What was the valuation a month or so ago when the prediction started?

Out of interest what are you doing to prepare?

I am doing nothing to prepare, I have very little invested in stocks, nor do I own a home. I have cash money saved in the bank, enough to last for some time in my current circumstances, obviously the jobs may go. But I will cross that bridge if I come to it.

The market as a whole, values of companies will fall, they will become hollow and pop. Even companies which are in a very strong position will adjust. 

The value of the FTSE 100 one month ago was 5942, it is now 5654.

The value of the Dow Jones was 28148, now it is 26966. 

I know these are only the top companies but we can surely use them as a general indicator. As I say above, I am just using common sense than some kind of knowledge of the markets. The crash doesn't have to happen all at once, it could occur over a few weeks or months, not long until my deadline!

If you were to compare it to the crash in the 30s, which actually took a couple of years, for different reasons, and there are more protections today, but our world is so fast today. Anything is possible. The unnatural way the markets seem to go up rapidly after going down rapidly is also very interesting.... I wonder is someone with vast power buying stocks to keep things afloat? who knows!

Shocking_Blue

London7766551 said:

Sailtheworld said:

London7766551 said:

I say the market will crash 60% by the end of January.  There you go a prediction and that would be a real crash! Also said it a month ago or so in the house crash thread. I stand by it and will happily get egg on my face.

What market? What was the valuation a month or so ago when the prediction started?

Out of interest what are you doing to prepare?

I am doing nothing to prepare, I have very little invested in stocks, nor do I own a home. I have cash money saved in the bank, enough to last for some time in my current circumstances, obviously the jobs may go. But I will cross that bridge if I come to it.

The market as a whole, values of companies will fall, they will become hollow and pop. Even companies which are in a very strong position will adjust. 

The value of the FTSE 100 one month ago was 5942, it is now 5654.

The value of the Dow Jones was 28148, now it is 26966. 

I know these are only the top companies but we can surely use them as a general indicator. As I say above, I am just using common sense than some kind of knowledge of the markets. The crash doesn't have to happen all at once, it could occur over a few weeks or months, not long until my deadline!

If you were to compare it to the crash in the 30s, which actually took a couple of years, for different reasons, and there are more protections today, but our world is so fast today. Anything is possible. 

So, in such a situation, the only response would be to sell up all funds etc?

csgohan4

London7766551 said:

Sailtheworld said:

London7766551 said:

I say the market will crash 60% by the end of January.  There you go a prediction and that would be a real crash! Also said it a month ago or so in the house crash thread. I stand by it and will happily get egg on my face.

What market? What was the valuation a month or so ago when the prediction started?

Out of interest what are you doing to prepare?

I am doing nothing to prepare, I have very little invested in stocks, nor do I own a home. I have cash money saved in the bank, enough to last for some time in my current circumstances, obviously the jobs may go. But I will cross that bridge if I come to it.

The market as a whole, values of companies will fall, they will become hollow and pop. Even companies which are in a very strong position will adjust. 

The value of the FTSE 100 one month ago was 5942, it is now 5654.

The value of the Dow Jones was 28148, now it is 26966. 

I know these are only the top companies but we can surely use them as a general indicator. As I say above, I am just using common sense than some kind of knowledge of the markets. The crash doesn't have to happen all at once, it could occur over a few weeks or months, not long until my deadline!

If you were to compare it to the crash in the 30s, which actually took a couple of years, for different reasons, and there are more protections today, but our world is so fast today. Anything is possible. The unnatural way the markets seem to go up rapidly after going down rapidly is also very interesting.... I wonder is someone with vast power buying stocks to keep things afloat? who knows!

if you look at the 2008 drop for the FTS100 they have actually already recovered before covid happened and actually gone up. As with investing, you invest over decades to iron out the lows with the highs, hopefully more highs. 

Your thinking that this will be doomsday is utterly ridiculous, we're all still here even after the great depression.