Northern Light
Superstar
the key to S&P 500 and historic PE ratios is to factor in current low interest rates , investors are willing to pay more for S&P 500 due to historic low interest rates as compared to past higher interest rates
that and the fact we have a nice yield curve in US bonds, once the yield curve inverts (meaning short term rates higher then long term rates i will be cautious, as an inverted yield curve has predicted every recession , even the covid sell off
2019 yield curve inversion
2019’s Yield Curve Inversion Means A Recession Could Hit In 2020
Investors seem to have come down with amnesia that there is a lag between the inversion of the yield curve and the start of a recession. If history is repeated, a recession could start between January and November 2020.www.google.ca
I don't disagree with any of the above.
But, personally, for me, investing needs to be a rational choice.
That requires (for me), being able to look at the books and say, do I have a recoupable investment, based on current forward earnings.
I generally stay with investments that I believe have a reasonable prospect of that over a 15-year horizon (meaning forward P/E of 15 or less).
No rule is inviolable. Sometimes such ideas also preclude what turn out to be good investments (I never got on the Amazon bandwagon).
But I just can't talk myself into investing in a business whose model doesn't suggest to me a reasonable prospect of making back my money.
PS, I'm not long on everything. But I like when I see solid blue-chip stocks that trade down to 11 P/E, and then you ride them back up to 15 while they pay you to wait; often
over a space of only six months. A healthy return in the range of 40%, or 80% annualized.
Other people will have higher risk tolerances, but I'm quite content with that type of return, or even 1/2 as much with a reasonable confidence my investments have a very low risk of going to zero in a hurry.
I will sometimes look at a small-cap that I find interesting. But I need to understand their business model and be persuaded of the payoff. I would also tend to limit my exposure though on a higher-risk play.
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