Can Stocks Keep Going Higher?
Investor sentiment (according to the AAII Sentiment Survey) says stocks are going higher. At least it did until the recent correction. Maybe sentiment will change now. I don't know, but the new survey will be out soon.
If stocks keep going higher, it wouldn't surprise me. Then again, if they tanked, I wouldn't be shocked. And that's the problem with stocks right now. Things have gotten pretty irrational.
Not that the stock market's always always a rational place. After all, it's basically a voting machine and the voters are - ultimately - people. Even with all those computer-driven programmed trades that jerk the averages up and down at times. And if you think about the people you know, you probably would agree that people don't always act rationally all the time, right?
But what's especially irrational right now? I mean, I just read where a panel of U.S. CEO's were all giddy about earnings, saying that profits are up and things are looking good for the near term. So shouldn't the prices of stocks be going up with all that good news?
Well, here's the thing: they're already up. They've been going up. In fact, stocks have broken through their previous high for the correction that started in March 2009, after the big plunge in 2008. And you can make the argument that the price of stocks has already anticipated what these CEO's are so happy about. In that sense the stock market is already discounting those higher profits that should result in higher earnings in the near future.
If that's the case, that is, if stocks have already discounted or taken into account higher profits, then there's really no reason to use higher profits and earnings as your reason for thinking that the stock market should go even higher.
But, hey, let's not get all wrapped up in the short-term here. The real thing we should be asking is whether putting money into stocks will give us a decent return over the longer term. And there, it's hard to see how that's going to happen - at least when it comes to U.S. stocks. Just looking at P/E ratios (as of 11/4) of 14.6 for the DJIA and 17.06 for the S&P, along with dividend yields of 2.47 for the DJIA and 1.95 for the S&P, you've got to be thinking that stocks are kind of richly priced right now.
Now, that doesn't mean you can't make any money in stocks. But, let's face it, with dividends so low, you're not going to make too much there. So you've got to figure on prices going up, right? And the historical evidence isn't really on your side there - at least not for the long term.
So you're looking at shorter-term trading if you want to make money right now. Nothing wrong with that, of course. People make money doing this. Just be sure that when you buy stocks for the shorter term, you've got a clear idea of when you'll be selling. Otherwise you just wind up buying, watching the price go up, then watching it come back down again. Or maybe you watch it go up and just kind of sit there for a few years. It just becomes dead money. And dead money doesn't really give you profits.
The point is that stocks here are more of a trade than an investment. The exceptions would be if you know how to dig and find companies selling at really great values and you're willing to sit with them no matter which way the stock market goes over the next year or two or three...or four or more.
Then again, most of us really don't have that patience and discipline. We don't really want to watch our stocks either drop too much or just sit like dead ducks in the water (I've actually never seen a dead duck in the water, have you?) for a few years - most especially when that dead duck pays you a measly 2% dividend, if it pays a dividend at all.
So if you're going to put fresh money into stocks at this point, you better have some good reason to do so, and a good plan on when you're going to sell and take a profit.
(You know, now that I think about it, you probably want to use that approach whenever you buy stocks, right?)
Anyway, this sort of stock market's not all that compelling from my end. It's a bit rich for my blood...well, with maybe one or two exceptions.
If stocks keep going higher, it wouldn't surprise me. Then again, if they tanked, I wouldn't be shocked. And that's the problem with stocks right now. Things have gotten pretty irrational.
Not that the stock market's always always a rational place. After all, it's basically a voting machine and the voters are - ultimately - people. Even with all those computer-driven programmed trades that jerk the averages up and down at times. And if you think about the people you know, you probably would agree that people don't always act rationally all the time, right?
But what's especially irrational right now? I mean, I just read where a panel of U.S. CEO's were all giddy about earnings, saying that profits are up and things are looking good for the near term. So shouldn't the prices of stocks be going up with all that good news?
Well, here's the thing: they're already up. They've been going up. In fact, stocks have broken through their previous high for the correction that started in March 2009, after the big plunge in 2008. And you can make the argument that the price of stocks has already anticipated what these CEO's are so happy about. In that sense the stock market is already discounting those higher profits that should result in higher earnings in the near future.
If that's the case, that is, if stocks have already discounted or taken into account higher profits, then there's really no reason to use higher profits and earnings as your reason for thinking that the stock market should go even higher.
But, hey, let's not get all wrapped up in the short-term here. The real thing we should be asking is whether putting money into stocks will give us a decent return over the longer term. And there, it's hard to see how that's going to happen - at least when it comes to U.S. stocks. Just looking at P/E ratios (as of 11/4) of 14.6 for the DJIA and 17.06 for the S&P, along with dividend yields of 2.47 for the DJIA and 1.95 for the S&P, you've got to be thinking that stocks are kind of richly priced right now.
Now, that doesn't mean you can't make any money in stocks. But, let's face it, with dividends so low, you're not going to make too much there. So you've got to figure on prices going up, right? And the historical evidence isn't really on your side there - at least not for the long term.
So you're looking at shorter-term trading if you want to make money right now. Nothing wrong with that, of course. People make money doing this. Just be sure that when you buy stocks for the shorter term, you've got a clear idea of when you'll be selling. Otherwise you just wind up buying, watching the price go up, then watching it come back down again. Or maybe you watch it go up and just kind of sit there for a few years. It just becomes dead money. And dead money doesn't really give you profits.
The point is that stocks here are more of a trade than an investment. The exceptions would be if you know how to dig and find companies selling at really great values and you're willing to sit with them no matter which way the stock market goes over the next year or two or three...or four or more.
Then again, most of us really don't have that patience and discipline. We don't really want to watch our stocks either drop too much or just sit like dead ducks in the water (I've actually never seen a dead duck in the water, have you?) for a few years - most especially when that dead duck pays you a measly 2% dividend, if it pays a dividend at all.
So if you're going to put fresh money into stocks at this point, you better have some good reason to do so, and a good plan on when you're going to sell and take a profit.
(You know, now that I think about it, you probably want to use that approach whenever you buy stocks, right?)
Anyway, this sort of stock market's not all that compelling from my end. It's a bit rich for my blood...well, with maybe one or two exceptions.
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