All Aboard For FTSE 7,000

.....may continue into the stratosphere given enough propellent.

People are often told that you're effectively losing cash to inflation if you leave it in a high-interest non-taxable account.

But this is less risky than overpaying for an asset.

I suppose it's not as bad if you receive regular dividends but are we into the realms of 'dumb money' entering the stock markets now?

Prof

Yes, dumb money is flooding into the markets. Anyone wishing to call themselves "smart money" would have been buying at half the price four years ago - or at 25% cheaper prices in autumn 2011.

Inflows to mutual funds in January 2013 have reached levels not seen since spring 2000 (the peak of the dotcom boom).

The Fool discussion boards are buzzing with activity and optimism like I've rarely seen before as investors regale their portfolios and their brilliant stockpicking (even monkeys can make money when the market overall is moving up).

This bull market is old - and also one of the biggest in terms of price appreciation off the lows.

Equities are not cheap.

Economic fundamentals are mediocre at best.

Investors are panic-buying and now refusing to even contemplate the idea that markets could ever decline; they've fallen in love with their shares because of what has been - not what may be.

Chart indicators are very high - some as extreme as seen in the year 2000.

The bulls may be able to continue to dance on the bears graves for a while longer, but from current prices it will eventually be the bears who get the last and best laugh.

"All Aboard For FTSE 7,000!!!
That's a clear 'sell' signal to me.....

But seriously, I'm on the horns of a dilemma at the moment;

(a) Move out into cash and take profits --- wait for correction before getting back in again (cash that will lose its value even at best interest rates)
or
(b) Stop buying and sit on hands, collecting dividends ...

the prevailing market is not buying equities on fundamentals, but on yield. whether there are any growth prospects not already factored into the sp is immaterial: all that matters is yield.

So where is the growth to justify valuations?

UK is teetering on "triple dip".
Europe is in recession and any parts that aren't are now teetering on the edge.
US is now teetering on the edge.
Japan has been lost for decades after its super-bubble burst.
BRICS rely heavily on manufacturing and exporting to meet consumer demand in the Western nations.

Despite QEasing to QInfinity, growth is hard to come by.

Everyone wondering where the growth is keeps on presuming the markets had priced in growth. The markets nearly priced in European Armageddon and an jnodung financial sector. Both if which seem to have been avoided... The growth maybe small but it's all price relative

I can't remember this much optimism for a long time.
Mainstream newspaper articles like this are usually a bad sign

http://www.thisismoney.co.uk/money/markets/article-2270549/FTSE-100-holds-gains-6-300.html

Its hard to know what to do, keep with trend or momentum. On the other hand, if the Euro Troubles resurface, and other bad news, its possible FTSE could fall 1000 points like August 2011

F958B: You keep going on about no growth. Just look at the FTSE big hitters. Profits from 2008 to 2011 (or as close as year ends approximate):

HSBC 144% up, Shell 10% up, Vodafone 138% up, GSK 17% up & BP 15% up.

The FTSE is, and has been, seeing substantial significant profit growth across several sectors. What has held it back is risk and fear, as those subside people are suddenly realising that actually HSBC is not a basket case but actually made £22bn last year and that Vodafone makes more profits in South Africa than it does in the UK and Spain combined.

The UK may be facing stagflation or 10 years in the Wilderness (I don't actually hold to this) but that is irrelevant when many of our largest FTSE businesses do 90% of their business overseas.

I have been and remain with F958B on this one. So much so that spending the last year in over 50% cash has resulted in a relatively lack lustre annual return.

The reason for my increased caution is that the S & P 500 is the key market to watch, currently more than doubled since its March 2009 low. On an historic (not forecast) earnings basis, the S & P is fully valued (expensive).

Money printing or QE has been the main reason that the S & P has strayed so far above its fundamentals. That bull market may continue for some time especially as the animal spirits so in evidence grow.

What there is agreement about is that we are in the midst of an exhuberant bull market? How will it end? That poses a dilemma for some - not me since I am already 60% cash.

P103

Too rich for my blood at the moment. Will hold and keep saving waiting for a better buying opportunity.

For what its worth I this rally will have some legs as the next correction will likely bring in a load of buyers that missed, or didnt believe in, the January rally until it was too late. They'll buy up a correction permitted there's no bad news for a while.

That and I think people have a bit of recession fatigue. Its been five years now. And every year that goes by is a year closer to retirement for folk that are sitting on paltry returns on the side-lines.

I might just shake my head on what I've written above in a few months time.

Fascinating debate. Some say 'the FTSE100 will hit 7,000 in April'. Some say 'the FTSE100 will soon crash by a thousand points'.

I think, as is often the case, the truth will be somewhere in the middle. I am confident we will end the year a lot higher than we started, but 7,000 is too optimistic. But I am happy to be virtually fully invested at the moment.

Prabhat.

F958B
"Equities are not cheap."

It's true they're not so deliciously cheap as they were a few months back, but there's not yet a shortage of reasonably priced bargains.

"Dumb money is flooding into the markets. Anyone wishing to call themselves "smart money" would have been buying at half the price four years ago - or at 25% cheaper prices in autumn 2011."

I've no wish to call myself "smart money" - we dumbos are thick enough to be quietly happy so long as those dividends keep snowballing in.

.

goodlifer:

While I appreciate the ardent Grahamism can you, with hand on heart (and mouse pointer on spreadsheet), be sure that you can clearly enumerate what every share you hold is actually worth to you?

Even if so, if the famous Mr Market offers you 5% premium, do you bite? 10%? 40%? Have you considered CGT? Where do you reinvest, when they're bidding everything up?

As you may recall, I've been bearish for months now. But I'm still around 80% in, and you couldn't buy most of it from me, because it was accumulated at what I regard as decent value and just keeps on spitting money at me. My problem is what to do with the proceeds, when I don't trust current levels. So I'm doing nothing.

I've been investing against the "wall" of bond money for years. Now market sentiment seems to be turning, and every other hack is writing about a "great rotation" back into equities (when they were proclaiming the death of same a year earlier), I don't know whether to be happy or worried. Well I do, actually, and it's the latter. Because I can't shake the feeling that the narrative is playing out far too quickly and conveniently.

This seems to me to be a trader's, rather than an investor's market. What's that I hear you say? Don't try and time, just trickle in? Fine, but why even get involved at all, when you're uncomfortable?

ANuvver
"Can you,,, be sure that you can clearly enumerate what every share you hold is actually worth to you?"
No.

"If the famous Mr Market offers you 5% premium, do you bite? 10%? 40%?"
No.

Premium depends on what I paid for it.
Value doesn't

"Have you considered CGT?"
Yes.

"Where do you reinvest, when they're bidding everything up?"
Depends what's available.

If nothing sensible were available I'd hold my horses.
That would be, for me, a new experience.

lfc

The purpose of investing - at least for me - is to buy quality shares at sensible prices; not to wait for shares to double in a four-year period and then "discover" what a good investment it *would* have been.

This is not a new bull market.
Equities have further downside mean-reversion to do. I doubt the 2009 price lows will fail, but P/E's need to go much lower, otherwise we will have reached "a permanently high plateau" in equity valuations where valuation undershoots no longer occur to balance the overshoots.
FTSE P/E was more than twice the long-run average when it topped in 1999. Now it's a little above the long-run average.

Whatever happened to the mean-reversion principle of equity valuations?
Equal and opposite. For the time and extent the FTSE spent above its long-term average, it must spend an equal time and extent below trend.
If it peaked at twice its long-run average P/E, then it should trough at half its long-run average P/E.
If it spent ten years an average of 20% above trend, it must spend ten years 20% below trend (or 20 years 10% below trend).

Valuations have always mean-reverted before. Historical odds are 100% that they will do so again. Only if "this time is different" will equities not complete the down-cycle of their long-term valuation trends.

It won't be different.
With equities having overshot to the upside by a record extent in 1999-2000 (FTSE100 P/E hit a record around 30x), I'd not at all be surprised if equities eventually undershoot to a near-record extent in the years ahead. Perhaps only beaten by the FT30's P/E ratio of 4x (yield 13%) seen in the mid-1970's.
The last long-running bull-bear cycle lasted from the valuation peak in 1966 through to the valuation trough in 1982. The price lows were halfway along; 1974.
So an on-off valuation mean-reversion process from 2000 to 2016 would be quite reasonable to expect based on past long-term bears - and we already have evidence for price lows half way along, around 2008, just as were seen in the middle of the 1966-82 bear.

goodlifer:

By "premium" I meant premium to what you think a share is worth.
Since you admit you're not clear on what that "worth to me" price is, how do apply your rule?

I admit that the "worth to me" price is a very difficult call. As a conservative income junkie, I regard some of my holdings as not for sale at any price (well... within reason). Ideally, I make money by taking assets off people's hands when they're terrified. Sure, there'll always be relative value in the market, but at the moment it seems like the sun is shining, but umbrellas still aren't cheap enough. It's still risk-on-risk-off.

Am I frustrated that I'm largely defensive when cyclicals are making the pace? No. Am I frustrated that I'm 20% cash? I'll confess, a little. But not enough to hurl myself into what I regard as an overbought market. At the moment, I'm focused solely on my ISA watchlist and looking for lurches before April.

And I wasn't implying that you're uncomfortable, I was saying that I am!

ANuvver
I'm afraid much of what you say about "worth to me" price, relative value, risk-on-risk-off and cyclicals means little or nothing to me.

How do I apply my rule?
When I try and evaluate a share, whether for buying or selling, one - just one - of the things I look at is its PER.
I don't like to pay more than about 10 times earnings, and if anything climbs to more than about 18 I start to think about selling.

But let me stress that PER is only one of about half a dozen items on my checklist.

F958B,

I agree completely with what you say; with one proviso.

The prior periods you refer to, especially 74 etc, have one things that is different to today: no QE.

I dont know whats going to happen, but I'd venture a guess that QE is in a way smoothly out the troughs a bit and lengthening the cycle.

I'm in complete agreement with you, markets will mean-revert and it could get quite brutal. I so, however, suspect, it could be a while yet before they do.

I'm also sitting on 20% cash, but wont be spending it anytime soon, unless I see an obvious bargain.