what my intuition tells me now: update from March 12thPosted by Jason Apollo Voss on May 7, 2009 in Blog | Comments Off
Back on March 12th of this year I posted a blog entitled, “Bottomed out?” At the time I was reluctant to make a call as to whether or not a bottom had been reached in the equity markets. There was still a lot of uncertainty. However, I was comfortable investing my own money in the midst of that flotsam and jetsam, but reluctant to suggest that my readership do so. My solution was simply to share with each of you that I was buying for my own account and let each of you conduct a “gut check” as to your own comfort level. My confidence was based on the fact that the equity markets had risen three days in a row in the face of some good news and some bad.
So how have the equity markets performed since that March 12th plunge into equities?
RETURN BETWEEN MARCH 12, 2009 and MAY 6, 2009:
- Dow Jones Industrial Average = 18.72%
- Standard & Poor’s 500 Index = 22.48%
- NASDAQ Composite = 23.35%
Not bad, not bad at all.
Oftentimes these types of returns can take several years to accumulate. So the last 7 weeks have clearly been enormous in terms of return. The biggest difference between a great business and a great investment is price. What the above numbers say is that on average U.S. businesses have become more expensive to own. It also says that they are riskier to own as investments. Let’s consider that for a moment. If you overpay for a house is the risk that you lose money higher or lower? The answer is obvious, but often times the thinking about stocks is ass backwards. The higher the prices the less risky an investment in a stock feels, right? Let me give you another example, if you go to the movies and the cost to see a movie is $50, what is the chance that you will feel ripped off vs. the movie costing only $5?
The ultimate point here is that we always need to carefully consider valuations before investing. And even more so when the market has given us two years worth of gains in 7 weeks. I will do a posting in the next several days about market valuations. However, in the meantime review the P/E primer from last fall to get a good sense of what kinds of valuations are reasonable.
P.S. – One of the books that I have spent the last 15 months writing is about to be marketed by my literary agent to the publishing houses. I would appreciate good vibes sent its way. The book is tentatively entitled: “Modern Alchemy: Using the Overlooked Natural Abilities of Our Right Brains for Greater Investment Success.” The book focuses on how to cultivate our creativity and our intuition for investment success. Additionally, the book is full of the right brain distillate from my years of humble success on Wall Street.