Trade Musings
There is a popular financial saying that the market is at its high when the last ‘bear has turned.’ Give the current gains in world financial instances there could be good reason to believe this is something to look out for.
The legendary value investor Jeremy Grantham has recently announced that the current high stock valuations seen around the globe could in fact be justified. Given that this is the guy who called the dotcom bubble and also correctly warned of a price bubble occurring in the real estate markets it could be time for investors to take head.
As an increasing number of sceptics seek to justify the current high valuations, investors around the globe are now questioning the validity of stock market highs.
Indeed, when markets become so highly valued, the expectation that a bubble is forming is frequently banded around. Of course, there are always those who seek to justify the prevailing picture as the new normal. In so many instances however they have been made to eat their words.
Market bubbles tend to burst in what is known as the ‘euphoric phase’. This is when they completely shrug off any form of bad news and continue to push forward. While it is true that price valuations have forged forward quickly, they are however mindful of economic data. A number of pullbacks have been seen.
A fair amount of nervousness exists in the financial sector. The recent faltering news from the US has seen pullbacks in key indices such as the DOW JONES and Nasdaq. However, in each instance this has proven to be only temporary. The fact that we are seeing a reaction may mean that we are not at extremes just yet. Many of the companies listed on the Nasdaq are now posting record highs. In other financial markets too, indicies are hitting record highs. Unfortunately the accompanying level of earnings and future potentials are not backing up these valuations. Price to earnings ratios are starting to look increasingly stretched.
While this may look as though I am making apologies for the market, it doesn’t look quite as though we are at the top of the cycle just yet. Earnings are forging forwards and there seems little in the way of slowdown in many of the figures being seen.
Having said this I think that now is the time to start taking stock. Not literally. By this I mean now is probably a good time to start thinking about locking in some profits and positioning for a more bearish picture in the coming years.
Long term returns are characterised by asset allocation. For this reason, it is good to ensure that you are properly allocated in relation to your risk profile. While stock markets may look attractive in the near term, they can quickly correct and erase any gains.
A balanced approach to risk may well not look particularly attractive when markets are rising. However, it will server investors well in the event of a sell off or longer period of sideways markets. Creating a balance between holdings across stocks, bonds, property and cash for example, offers a good solution moving forwards.
The legendary value investor Jeremy Grantham has recently announced that the current high stock valuations seen around the globe could in fact be justified. Given that this is the guy who called the dotcom bubble and also correctly warned of a price bubble occurring in the real estate markets it could be time for investors to take head.
As an increasing number of sceptics seek to justify the current high valuations, investors around the globe are now questioning the validity of stock market highs.
Indeed, when markets become so highly valued, the expectation that a bubble is forming is frequently banded around. Of course, there are always those who seek to justify the prevailing picture as the new normal. In so many instances however they have been made to eat their words.
Market bubbles tend to burst in what is known as the ‘euphoric phase’. This is when they completely shrug off any form of bad news and continue to push forward. While it is true that price valuations have forged forward quickly, they are however mindful of economic data. A number of pullbacks have been seen.
A fair amount of nervousness exists in the financial sector. The recent faltering news from the US has seen pullbacks in key indices such as the DOW JONES and Nasdaq. However, in each instance this has proven to be only temporary. The fact that we are seeing a reaction may mean that we are not at extremes just yet. Many of the companies listed on the Nasdaq are now posting record highs. In other financial markets too, indicies are hitting record highs. Unfortunately the accompanying level of earnings and future potentials are not backing up these valuations. Price to earnings ratios are starting to look increasingly stretched.
While this may look as though I am making apologies for the market, it doesn’t look quite as though we are at the top of the cycle just yet. Earnings are forging forwards and there seems little in the way of slowdown in many of the figures being seen.
Having said this I think that now is the time to start taking stock. Not literally. By this I mean now is probably a good time to start thinking about locking in some profits and positioning for a more bearish picture in the coming years.
Long term returns are characterised by asset allocation. For this reason, it is good to ensure that you are properly allocated in relation to your risk profile. While stock markets may look attractive in the near term, they can quickly correct and erase any gains.
A balanced approach to risk may well not look particularly attractive when markets are rising. However, it will server investors well in the event of a sell off or longer period of sideways markets. Creating a balance between holdings across stocks, bonds, property and cash for example, offers a good solution moving forwards.