Current Market Valuations

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The market continues to trade at all-time highs as measured by Price-to-Sales, Price-to- Cash Flow and Price-to-GDP. The Price-to-Earnings ratio is only slightly over-valued on a historical basis, but that’s due to the $450 Billion in Stock Buybacks by corporations over the past year, rather than growth in earnings.

While I believe that market valuations and market risk are currently very high based on historical standards, it does not preclude the stock market from continuing to go higher. That being said, we may see the record run of stock prices staying above their 5 day moving average as the capitulation prior to lower prices.

I have to believe, that at some point, valuing business will once again matter. When that occurs, or when one of the many geo-political risks becomes a concern the market will face a sell-off. With margin still near record highs, the sell-off could be as brief and swift as the October correction. If the risks deepen or the economy slows, the correction could be quite a bit steeper which will give us a good buying opportunity.

I share a minority viewpoint, in that I’m currently more interested in observing where the markets go, without fearing out on missing further stock market gains, rather than actually being invested in the market.

I cannot predict how high or low a market will go or how long it will last. I can only protect my money when the risks are too high, and put my money to work when the probabilities are in my favor. That’s been a recipe for success for the greatest value investors and one that I will continue to follow. Few are able to stick to the recipe and their results show it.

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