Is The Stock Market Overpriced?
The Dow has currently been up 24 out of the past 27 sessions. From what I’ve heard, this is a record. Its NEVER done this before!!!!
And its not like the US economy is rock-solid. According to Chuck Butler of Everbank.com, the US unemployment rate should actually be at 12% instead of the 4.5% that the government actually discloses. Also, all the emerging markets have had a higher GDP growth last year than the US. This has also never happened before!
And the US Dollar is weakening against almost every other major currency there is. Not exactly a confidence builder!
There’s also a saying in the stock market, “Sell in May and go away” which refers to the historic fact of summer stock price slumps that happen more often than not. There’s also studies that show the major returns occur between October and April every year.
Given all this good news, is the stock market currently overpriced? A lot of my stocks have done ok and a few have done exceptionally well. (Anglo-America(AAUK), BHP Billington(BHP) and Yumana Gold(AUY) are up over 30% in the past 6 months). The Canadian Income Funds I own are mostly break-even but they pay out around 1% every month so I’m not really concerned, especially with the Canadian Loonie strengthening against the USD and hitting 90 cents now.
Even stocks in the retirement accounts like Petro-China(PTR) have finally shown some signs of life! After jumping from $109 to $140 and then dropping back down to $109 its back up at $129.
Most of these stocks that I’d like to hold for the long term. There are however, several stocks which are a bit more speculative. They’re roughly 10% of my portfolio and about 1-2% of my net worth. So even if they were to drop it wouldn’t negatively affect my lifestyle.
That being said, no one likes to lose money. Especially if it looks like everything is stacked against you.
I’ve heard of some people liquidating 50% of their positions and taking the summer off. Doesn’t sound like a bad idea, but there are tax consequences to this. Plus, if you don’t do anything and the market comes back in the fall, the commissions and taxes were unnecessary. Plus you might miss a big move.
What are you guys doing?
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May 8th, 2007 at 7:34 am
Slow and steady wins the race! I plan not doing Anything!!!!!!!!!!!!
My Mutual Funds/ETFs is on cruise control
May 8th, 2007 at 10:28 am
Same here. Index funds and ETFs for me. Not selling, not speculating. Staying the course.
BTW, who cares about the DOW? It is not an indication for anything. The DOW is composed of only 30 large stocks. Other, more diversified indexes, such as the Wilshire 5000 or the S&P have not done as great. In any case, corporate earnings have been going through the roof which is one of the reasons for the stock market rally.
Although it may be fun to talk about the stock market, I make it a point to DO nothing about it.
May 8th, 2007 at 5:04 pm
What are we doing?
Well…mostly buying more stock. I just took a position in ERH and I’m keeping an eye on HANS.
February 16th, 2008 at 7:02 am
What am I doing?
Trading the volatility, that’s what!
And from a trading POV, I really don’t care which way the market moves, just so long as it moves!
December 14th, 2009 at 7:55 am
Well, seeing how the two years after this was written had one of the worst downturns in the stock market since the Great Depression, I’d say that yes, it probably was overpriced. Of course, hindsight is 20/20, and as to whether it is still overpriced today, I honestly don’t know.