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It’s Official: June Stunk!
By JLP | July 1, 2008
Take a look at this table I downloaded from Standard & Poor’s website:
The financial services sector alone was down over 18% for just the month of June!
Of course the question on everybody’s mind is:
Is this a buying opportunity?
Well, I’m not one to time the market but a recent article ($) in the Wall Street Journal puts this market in perspective:
…the S&P 500 now trades at a price-earnings multiple of about 15 times this year’s expected earnings.
The 10-year average is 18.7, covering a period of investor exuberance, as well as the 2000-2002 market downturn. The 24-year average P/E ratio is 15, and that includes a period of much higher inflation than now. That all suggests that the market is reasonably priced, though not yet at bargain-basement levels.
Some investors like to compare the market’s earnings yield, or its earnings divided by price, with the yield on safe bonds, as a barometer of value. Today, the stock market’s earnings yield is about 3.36 percentage points above the yield on 10-year Treasury bonds, suggesting stocks are more attractive than bonds.
Of course the flaw with forward-looking P/E ratios is that future earnings are never reliable. So, the article mentions using a P/E based on the last 12 months of earnings. That P/E was around 21, compared to a long-term average of about 16. So, stocks don’t look exactly cheap if you use that measure.
Bottom line:
If you’re in this for the long-run, then I wouldn’t worry about it. Just keep socking money away each month and consider the downtimes as stock market “sales.” Think happy thoughts.
Topics: Investing, Miscellaneous |
July 1st, 2008 at 12:38 pm
I think your bottom line says it all. Consider the market as having a sale. Buy low and sell high.
July 1st, 2008 at 1:08 pm
I am in it for the long run, but I still feel a lot of short term pain from the paper losses - thinking that I could have bought in at cheaper prices and got more for my investment. Case in point is Apple stock, which I wrote about recently, which I got in at $187 and is now $170. If I had just waited one more week I could have got the lower price. Still believe in the long term story but it is nice to get in right at the bottom.
July 1st, 2008 at 1:23 pm
The funny thing is that, as of May 19, I was actually “green” for the year in my Vanguard stuff. My, oh my, how stocks can turn on you.
My wife just keeps dollar-cost-averaging, although it has been grim of late to lose more than you sock away.
Well, if you don’t need your stocks/bonds for ten to twelve years, you might be OK. Of course, many in Japan said the same thing in 1990, I suspect.
Gotta be diversified. It’s a mantra well worth repeating. I’m still making 5.75% in my laddered CDs (which, for the record, are now yielding much more than my Vanguard balanced fund over the past two years).
Stuff goes up, stuff goes down.
Yours,
Bozo
July 1st, 2008 at 1:57 pm
Market is definitely on sale. But I’m not sure today is a buying opportunity. I think it’ll be around this figure for the rest of the year. In other words might as well keep it in cash for now and then rethink this issue in November.
Having cash on hand is definitely a good thing right now. If you need any work done - house exterior, new fence, roof, car repair you’ve been putting off, things like that - now is the time to do it. People are desperate for work and if you have cash you are certainly in a negotiating position. I’m getting a new fence built (been putting it off for 2 years). Its actually cheaper now than it was 6 months ago, eventhough raw materials are more expensive.
July 2nd, 2008 at 8:30 am
Can you give me the link to that table on the S&P website?