USA - the next decade

Steve182

I've been a "US Bull" for a few years, but since the surge over past 12 months I just cannot see that the present numbers make any sense.

I'm fundamentally a growth investor but also happy to embrace value when opportunity arises. 

S & P 500 has done something astonishing in the past year or so, and average P/E is now around 40, some sources estimate it as high as 44. This sort of ratio is OK for growth companies such as Amazon but not OK for a broader index such as the S & P.

This basically means that if you purchase shares in a company at age 20-25 it should have earned your investment back at the point of your retirement.

Put this into perspective, some of the mining companies I'm currently invested in have a 12 month forward P/E of <5, so their shares are basically 1/10th of the price of the average S & P.

I've now sold all of my pure/direct US holdings except for Amazon, which I consider reasonably valued based on current P/E and future growth potential.

I still hold some Chinese ADR's, and Scottish Mortgage, who I trust to make far better stock selections than I.

Edited to add UK as a comparison -

FTSE 100 TTM P/E 18, Forward P/E 14
FTSE 250 TTM P/E 30, Forward P/E 22

So UK shares are about half the price.....

That said, I would not go near the FTSE100 with a bargepole. 
FTSE250/AIM etc are a much better bet

mrlegend123

Steve182 said:

I've been a "US Bull" for a few years, but since the surge over past 12 months I just cannot see that the present numbers make any sense.

I'm fundamentally a growth investor but also happy to embrace value when opportunity arises. 

S & P 500 has done something astonishing in the past year or so, and average P/E is now around 40, some sources estimate it as high as 44. This sort of ratio is OK for growth companies such as Amazon but not OK for a broader index such as the S & P.

This basically means that if you purchase shares in a company at age 20-25 it should have earned your investment back at the point of your retirement.

Put this into perspective, some of the mining companies I'm currently invested in have a 12 month forward P/E of <5, so their shares are basically 1/10th of the price of the average S & P.

I've now sold all of my pure/direct US holdings except for Amazon, which I consider reasonably valued based on current P/E and future growth potential.

I still hold some Chinese ADR's, and Scottish Mortgage, who I trust to make far better stock selections than I.

Edited to add UK as a comparison -

FTSE 100 TTM P/E 18, Forward P/E 14
FTSE 250 TTM P/E 30, Forward P/E 22

So UK shares are about half the price.....

That said, I would not go near the FTSE100 with a bargepole. 
FTSE250/AIM etc are a much better bet

good post. it would take at least 10 years to reduce the s and p 500 Cape back to fair value.

coastline

Most estimates come up with similar results where the forward PE for the SP 500 is 22 ish. Recent earnings have been better and another year on should trim PE values more if price stays at similar levels.? It's also worth noting the Nasdaq is nowhere near those heady PE values during the dotcom era 20 years ago.
 P/E & Yields (wsj.com)
Looking at the history below the US market has spent many decades overvalued . You'd probably miss out on decent gains without a large allocation in that region.
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