Good reads from around the Web.
There’s little doubt that most potential investments look expensive at the moment, with the possible exception of marked-down Brazilian football shirts…
Take UK government bonds. As recently as 2008, you could taper down your risk exposure by buying gilts and locking-in a 5% return.
At the same time, interest rates on cash for the savviest private investors were over 6%.
Today you won’t get even 3% on gilts. As for interest on cash, it has dwindled to approximately the same level as interest in signing the Brazilian strikers Fred, Hulk, and Oscar.
i.e. Near-zero.
This low return from safer assets mirrors the wider picture, where ultra-easy policy from Central Banks has pulled down yields across the asset classes, and hence bid up prices everywhere.
The New York Times has a catchy name for it, or rather two: Is it the Everything Boom, it asks, or the Everything Bubble?
Either way it’s not a place for stingy buyers to go shopping:
“We’re in a world where there are very few unambiguously cheap assets,” said Russ Koesterich, chief investment strategist at BlackRock, one of the world’s biggest asset managers, who spends his days scouring the earth for potential opportunities for investors to get a better return relative to the risks they are taking on.
“If you ask me to give you the one big bargain out there, I’m not sure there is one.”
I think the article is a bit selective with its definition of “everywhere you look” (Manhattan real estate and US bonds have been surging for years, and the Indonesian stock market is one of the few major emerging markets that looks truly frothy) but I agree with the gist.
There really isn’t much that’s obviously cheap about. Emerging markets looked better value for a while, but I have to boast say my pointing to this in December last year proved to be decent timing, given how they’ve caught a bid in 2014.
Even the gold miners I flagged up last July are ahead, with the likes of Randgold Resources some 25% higher.
Today it’s not easy to find comparable bargains. I could point to a few things that might be cheap, but they hardly seem like slamdunk opportunities.
For instance UK housebuilders have fallen hard on fears the property market has overheated – but investors could easily be proven right to have marked them down, depending on how interest rates move from here.
Anyway, buying too many shares in say Barratt Developments is hardly the stuff of prudent asset allocation.
What if they’re right?
Still, what seems like an expensive time to buy assets might yet turn out okay.
For one thing, not all markets are as expensive as the US, which tends to dominate the media. The UK market looks fine to me, and emerging markets as a whole are not yet dear in my view.
More important than my guesswork however is that stock markets are not completely stupid. It may well be that investors are right to be paying up to buy assets, even if they look a bit pricey.
One of the easiest traps to fall into as a new stock picker is to think that a share on a P/E rating1 of 6 is certainly a better buy than one on a P/E ratio of 18. Often it will be, but if the company on the higher rating grows earnings at 20% and the cheap stock sees profits fall, you will probably have done better to buy the more expensive looking option.
Similarly, it’s possible the global economy is finally going to shake off the long global slowdown and burst into strength for a few years. If it does, then today’s expensive valuations will be moderated by fast-growing earnings, and could turn out to have been a good investment after all.
Time will tell on that.
In the meantime, if you really must snag a bargain, maybe you could look at US golf courses! It’s a buyer’s market, apparently.
(And figuring out why may tell you more about whether other asset classes really are expensive than any valuation ratio…)
From the blogs
Making good use of the things that we find…
Passive investing
- It’s a great time to invest – Vanguard blog
- 93 ways that technical analysts fail to beat the market – Rick Ferri
- Bond bears: Admit you were wrong – Canadian Couch Potato
- Why investors should embrace simple solutions – Boomer & Echo
- Charles Ellis on ‘Values discovery’ – A Wealth of Common Sense
Active investing
- Royal Mail shares were not sold too cheap – UK Value Investor
- Screening for the best consumer staples stocks – Millennial Invest
- Dividend payers aren’t boring – SL Advisors
- You probably own too many different shares – Clear Eyes Investing
- Investing works because things can go wrong – The Reformed Broker
- Be prepared to wait for returns from bonds – The Value Perspective
Other articles
- How to worry less about money – Brain Pickings
- Save money, even while enjoying fancy coffee – Under the Money Tree
- Necessity is the mother of badassity – Mr Money Mustache
- Low volatility is good for the wider economy – Tim Hartford
- The first conscious machines will probably arise on Wall Street – The Mitrailleuse [hat tip to Abnormal Returns]
Product of the week: Are you a member of the Yorkshire Building Society? Then your child can get a 5%-paying savings account, reports The Telegraph. (Unfair? Well, this is what rewarding loyalty looks like. Be careful what you wish for.)
Mainstream media money
Some links are Google search results – in PC/desktop view these enable you to click through to read the piece without being a paid subscriber of that site.2
Passive investing
- Fidelity losing ground to index trackers [Search result] – FT
- 5 high-risk investing behaviours – MarketWatch
- Percentages versus dollars in the battle for attention – WSJ
- iShares winning fee war with itself [US but relevant] – ETF.com
Active investing
- CYNK went up 25,000% in a few days. For real? – Financial Post
- Why good things sometimes happen after bad news – Swedroe/CBS
- Low volatility is bad for ‘low-vol’ funds [Search result] – FT
- Profile of Jim Simmons, billionaire mathematician – NYT
- Where to invest your strong pounds overseas – Telegraph
Other stuff worth reading
- Shock! Horror! The FCA discovers teaser interest rates – Guardian
- 40-somethings “too old to get a mortgage” – Telegraph
- In Australia, solar has won. Even free coal couldn’t compete – Guardian
- Capital gains tax is more of a threat than you think – Telegraph
- Seeking economic freedom via a tiny house – Bloomberg
- 2 different [US] views of the same 4% rule – MarketWatch
- Robot financial journalists: Great for journalism – NY Mag
- Born in 1988? Sorry… – Bloomberg View
Book of the week: Total Return Investor’s review of The Davis Dynasty
Like these links? Subscribe to get them every week!
- The price to earnings ratio, often used as a measure of expensiveness. [↩]
- Reader Ken notes that: “FT articles can only be accessed through the search results if you’re using PC/desktop view (from mobile/tablet view they bring up the firewall/subscription page). To circumvent, switch your mobile browser to use the desktop view. On Chrome for Android: press the menu button followed by “Request Desktop Site”.” [↩]
“As for interest on cash, it has dwindled to approximately the same level as interest in signing the Brazilian strikers Fred, Hulk, and Oscar. i.e. Near-zero.” It’s funny how often I see this written; for most people who want a low energy, low effort, instant access account which will be enough for most people is the Santander 123 current account which pays 3% on balances up to £20,000 for a single account. Not amazing, similar to ten year gilts, but not as, “close to zero” as everyone seems to assume. Of course you can do better still if you combine this with current accounts from TSB (5%), Lloyds (4%) and regular savers (up to 6%). With a little effort, across single and joint accounts, spouses in particular can earn a reasonable return in a Zirp world on cash.
@Willem — I use some such accounts. The vast majority do not, as indicated by the Guardian story in the links above.
Moreover you’re not being paid for parking your cash with such accounts — not really.
You are being paid a special rate as a bet that you will remember to move your money, with the bank which is taking a loss either in the bet that you will not, or that it will be able to sell you extra products to make up for it.
For most people and companies, as an asset class, cash is yielding near zero. The point stands. 🙂
p.s. For some tips on following Willem’s (sensible!) advice of beating low rates, see this article:
http://monevator.com/maximise-savings-rates/
When I used CAPE to value the US and UK markets at the start of July I found the US market 56% over valued while the UK market was a “more reasonable” 11% so agree with your “the UK market looks fine to me”. UK HYP stalwarts such as VOD, SSE, CNA and GSK can still be had with forecast divi yields of greater than 5%. I also recently grabbed RDSB and PSON as HYP additions.
I used to believe that the secret was to buy low and sell high. I now think it’s to buy non-high and sell high. For example, people doing monthly investing for their old age would probably be better off buying whenever the markets aren’t lousy value, than keeping everything in cash and hoping to pounce when they are super value. Partly this comes from introspection; as a market timer I’ve been an excellent seller but a poor buyer – too cautious, too reluctant.
The zero return world is a pain but I don’t seei it lasting forever
I don’t see cash being such bad asset to be holding right now risk return wise in conjunction with higher yielding and higher risk stocks and bonds
‘A Wealth of Common Sense’ the US investing site has done 2 hypothetical demos 1] on only investing when the market was HIGH and 2] only investing on market LOWS, over a set period of time. the results were shocking!. It didn’t really matter when you got in the results were not that dramatic either way.
I like this saying that’s been around a long time…..’ the best time to enter the stock markets was 30 years ago, the next best time is now!’
As a holder of some iShares ETFs I’m quite annoyed by the iShares behaviour described in the ETF.com article. I noticed that iShares had introduced Core ETFs to the UK.
So now there are new iShares Core ETFs, that apparently are both cheaper and perhaps even better, which I’d prefer to hold in place of my existing holdings, but there is no way for me to switch without losing out to capital gains tax.
Vanguard are now my preferred source for ETFs since they released their range in the UK. Under their ownership model cost savings should get passed on the the investors rather than the shareholders.
@andy
oh what a shame. I take it your ishares ETFs are out side of an isa?
I suppose nothing you can do ,at least ETF s are low in fees anyway be it there are some slightly cheaper ones now on offer but they are still low cost compared to managed funds
some things you just gotta swallow back.
Hi, The “stockmarket at new highs” stories should always be taken with a pinch of salt. They are always reporting nominal figures. The “real” picture is very different. The real S&P500 is still a few percent below its all time high and the real FTSE100 is still down over 25% from the all time high in 1999.