I have seen this movie before. A new invention or two, and their future is wildly hyped. This time around it is AI and Space-X. Both going to change the life on Planet Earth and beyond- at least supposedly. Data centers and space travel are the hot things to invest in. Just follow the herd!
For reference, average historical price/earnings ratio run a little over 20. I sold some Cisco Systems the other day. It’s P/E was 40 and its dividend a paltry 1.4%. Wal-Mart stock has a 42 P/E ratio, and offers an .82% forward dividend. Is it a mature company, or doubling sales every year, to have this lofty valuation? Nvidia has a P/E of 32 and pays no dividend. SpaceX has neither a P/E nor a dividend, as it does not yet have any earnings. Will it ever have any earnings in our lifetime?
By any metric, the US stock market is overpriced.
In the meantime, I can earn 9.6% from the preferred share fund PFFA which employs leverage, or 6.9% from my high-yield BUFHX that does not employ leverage. Anyone think the high-flying stocks will return better than that in the future?
People were saying the same thing about Amazon in its early years as a public company. The reality is that those are capital intensive businesses that will spend a lot of money building out infrastructure.
As for stocks being overvalued…the market will let you know. Based on your comments, it seems you are looking more for income than growth anyway…
I have always targeted dividend paying stocks. Money not paid in dividends will be wasted by management somewhere. Paying dividends instills discipline in management. I have done well with this strategy.
That being said, at age 71 my main goal these days is not to lose principal. Is there a 9% per annum upside in the market? I strongly doubt it at this stage. Growth stocks can crash as easily as they can grow. I remember a poor pick called Global Crossing about 27 years ago. “Build it and they will come.”
Space X is one rocket crash away from a stock crash. That being said, I HOPE it prospers.
Sounds like you are trying to time the market. Since most of the NASDAQ does not pay dividends…I would say you are probably several thousand percent below total market returns.
Stock prices look high, if you calculate them in U.S. Dollars, but not so high if you calculate them in money(gold) terms. So, if the Dollar isn’t going to collapse, then some high flying stocks are priced too high. The risk of holding Dollars may or may not be higher than holding the shares of great companies, especially ones reasonably priced. Over the long run, Dollars are a guaranteed loser. The U.S. Dollar is basically the common stock of the bankrupt Federal government. In conclusion, if your investment time line is very short, then maybe hold more Dollars and if you have a longer time line, hold real assets, like shares of great companies, real estate, commodities, etc.
I feel the same way…but for a few years now. And the market keeps going up. I’ve been expecting a major correction and I’ve missed some significant gains in the mean time. They say you can’t time the market, but you should be able to acknowledge significant long term trends, and this market is WAY outside of historical norms. I don’t want to be one of the lemmings that stays the course if/when there is a generational correction. I’m not sure how to handle the current market.
PS. I also learned a hard lesson when Global Crossing went to zero.
I have never been a short trader. But they are often exasperated at how much an awful stock will go up before it FINALLY crashes. Sir Isaac Newton, one of the most brilliant physicists in history, lost a small fortune on the South Sea Bubble. He took a tidy profit early by selling his shares, but then was unnerved when the stock kept going up. So he bought back in close to the top. Guess what happened next? “I understand the movements of the planets in the universe better than the movement of opinion in the market,” he reputedly remarked.
The obvious solution at this time is to hold only those companies that pay dividends and are not wildly overvalued. That way you can still participate in any remaining upside in stocks, if any. Then put the rest of your money to work earning income. . The returns of BUFHX and PFFA look pretty good right now compared to stocks like Space X.
Another idea might be real estate. Been there, done that, and it is just too labor-intensive for me.