Value Overvalued
Value Overvalued
On page 5 of this report from JP Morgan, it shows Value stocks are overvalued, and Growth stocks are undervalued compare to their 20 years averages.
https://www.jpmorganfunds.com/blobconte ... lebook.pdf
Just want to point that out.
This reminds me of a quote from Warren Buffet:
Be fearful when others are greedy and greedy when others are fearful.
https://www.jpmorganfunds.com/blobconte ... lebook.pdf
Just want to point that out.
This reminds me of a quote from Warren Buffet:
Be fearful when others are greedy and greedy when others are fearful.
Re: Value Overvalued
Rebalancing tends to help with this kind of thing.
Kevin
Kevin
If I make a calculation error, #Cruncher probably will let me know.
Re: Value Overvalued
james99 wrote:On page 5 of this report from JP Morgan, it shows Value stocks are overvalued, and Growth stocks are undervalued compare to their 20 years averages.
https://www.jpmorganfunds.com/blobconte ... lebook.pdf
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Re: Value Overvalued
The question then becomes, what are you going to do about it?james99 wrote:On page 5 of this report from JP Morgan, it shows Value stocks are overvalued, and Growth stocks are undervalued compare to their 20 years averages.
https://www.jpmorganfunds.com/blobconte ... lebook.pdf
Just want to point that out.
This reminds me of a quote from Warren Buffet:
Be fearful when others are greedy and greedy when others are fearful.
Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.
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Re: Value Overvalued
What to do, what to do, what to do? JP Morgan says value stocks are overvalued, Larry Swedroe says the small value premium is persistent.pkcrafter wrote:The question then becomes, what are you going to do about it?james99 wrote:On page 5 of this report from JP Morgan, it shows Value stocks are overvalued, and Growth stocks are undervalued compare to their 20 years averages.
https://www.jpmorganfunds.com/blobconte ... lebook.pdf
Just want to point that out.
This reminds me of a quote from Warren Buffet:
Be fearful when others are greedy and greedy when others are fearful.
Paul
I think I'll hold both! You could call it... a "blend."
In fact I think I'll hold all nine Morningstar style boxes, in proportion to their weight in the market as a whole. It's too bad that requires holding nine different funds. Why doesn't someone invent a single fund that would contain stocks in all nine style boxes, in one convenient all-in-one package?
Last edited by nisiprius on Sun Jul 20, 2014 9:18 pm, edited 1 time in total.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
Re: Value Overvalued
I assume sarcasm.... if not, Total Stock Index fund.In fact I think I'll hold all nine Morningstar style boxes, in proportion to their weight in the market as a whole. It's too bad that requires holding nine different funds. Why doesn't someone invent a single fund that would contain stocks in all nine style boxes, in one convenient all-in-one package?
So value is expensive and growth is cheap?
Right now everything looks a little expensive. Note I said a little, I'm not changing anything in my portfolio.
Re: Value Overvalued
It's still undervalued relative to growth - funny how that is always case
Re: Value Overvalued
Sounds like an excuse for market timing.
Paul
Paul
...and then Buffy staked Edward. The end.
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Mr. Bogle's all-in-one package.
Someone has. His name is John Bogle. His "single fund" invention is Total Stock Market Index Fund.Why doesn't someone invent a single fund that would contain stocks in all nine style boxes, in one convenient all-in-one package?
Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
Re: Value Overvalued
Aren't these the same guys that are at the top of this list?
Taylor Larimore wrote:Bogleheads:
It is dangerous to use bank investment recommendations:
Bank Settlements in BILLIONS of dollars
Best wishes
Taylor
I always wanted to be a procrastinator.
Re: Value Overvalued
First, everyone concerned about the growth/value spread should read this excellent post by blueleaf. Now let's look at the JP Morgam chart from the above document.
1) Six of the last twenty years were 1994-2000, years in which growth stocks were priced through the stratosphere. Those years will artificially inflate the average PE for growth stocks. So I'm not sure how informative the 20 year average is going to be.
2) I'm having trouble recreating the PE ratios. Vanguard's growth fund has a trailing PE of 26. Probably, JP Morgan is using forward PE and not trailing PE. That makes somewhat more sense, but Morningstar still gives me a PE over 20 for the Russell 1000 Growth index (the index represented by the upper-right style box of the chart). Maybe JP Morgan just has more bullish forcasts for growth going forward. But now I get the sense that we've strayed from actual data into the realm of near-term market prediction...
1) Six of the last twenty years were 1994-2000, years in which growth stocks were priced through the stratosphere. Those years will artificially inflate the average PE for growth stocks. So I'm not sure how informative the 20 year average is going to be.
2) I'm having trouble recreating the PE ratios. Vanguard's growth fund has a trailing PE of 26. Probably, JP Morgan is using forward PE and not trailing PE. That makes somewhat more sense, but Morningstar still gives me a PE over 20 for the Russell 1000 Growth index (the index represented by the upper-right style box of the chart). Maybe JP Morgan just has more bullish forcasts for growth going forward. But now I get the sense that we've strayed from actual data into the realm of near-term market prediction...
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Re: Value Overvalued
I find it interesting that, as I have pointed out in another thread, the best performing "style box" in recent decades was mid-cap value, not small-cap value. According to JPM, some of that is due to faster expanding multiples, which is surprising.
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Re: Value Overvalued
nisi has nearly 25,000 posts.I assume sarcasm.... if not, Total Stock Index fund.
What do you think the odds are he does not know about TSM funds?
We live a world with knowledge of the future markets has less than one significant figure. And people will still and always demand answers to three significant digits.
Re: Value Overvalued
JPM believes in slice n' dice subsidiaries, as Senator Warren recently pointed out as she questioned Fed Chair Yellen.
"Warren has some concerns regarding JPMorgan's living will, which she notes has been approved each of the last years.
Compared to JPMorgan, Warren said Lehman was "tiny."
Warren noted that at the time of its bankruptcy, Lehman had $639 billion in assets; today, JPMorgan has nearly $2.5 trillion in assets.
Warren also said that Lehman had 209 subsidiaries when it failed; today, JPMorgan has 3,391 subsidiaries, or more than 15 times the number Lehman had when it went under."
3,391.
Surely, there must be "value" in there somewhere.
Lev
"Warren has some concerns regarding JPMorgan's living will, which she notes has been approved each of the last years.
Compared to JPMorgan, Warren said Lehman was "tiny."
Warren noted that at the time of its bankruptcy, Lehman had $639 billion in assets; today, JPMorgan has nearly $2.5 trillion in assets.
Warren also said that Lehman had 209 subsidiaries when it failed; today, JPMorgan has 3,391 subsidiaries, or more than 15 times the number Lehman had when it went under."
3,391.
Surely, there must be "value" in there somewhere.
Lev
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Re: Value Overvalued
The point of all of this is to try to make the reader feel that the markets are very complex and predictable. The obvious conclusion is to invest with the smart people who put these charts together. Too bad performance doesn't prove that out... in fact proves the opposite.
Stay the course. If you can't resist greed, and fear is proven to be 2x as strong, you are doomed as an investor.
Re: Value Overvalued
Okay, I get it. I'm going to delete all these bank investment pdfs from my computer, stop wasting my time searching for that extra return with value or whatever's next, and stay with good ol' TSM.Sidney wrote:Aren't these the same guys that are at the top of this list?
Taylor Larimore wrote:Bogleheads:
It is dangerous to use bank investment recommendations:
Bank Settlements in BILLIONS of dollars
Best wishes
Taylor
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Re: Value Overvalued
james99 wrote:Okay, I get it. I'm going to delete all these bank investment pdfs from my computer, stop wasting my time searching for that extra return with value or whatever's next, and stay with good ol' TSM.Sidney wrote:Aren't these the same guys that are at the top of this list?
Taylor Larimore wrote:Bogleheads:
It is dangerous to use bank investment recommendations:
Bank Settlements in BILLIONS of dollars
Best wishes
Taylor
Value and size actually have a strong case for being unique risk factors. This provides for a diversification benefit, and ability to reduce total equity exposure in favor of more bonds, without sacrificing performance.
Stay the course. If you can't resist greed, and fear is proven to be 2x as strong, you are doomed as an investor.
Re: Value Overvalued
Overvalued or not, I would like to thank James99 for the link. It contains a lot of relevant statistics and data.
Thanks.
Thanks.
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Re: Value Overvalued
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Last edited by HenryPorter on Tue Jul 22, 2014 11:10 pm, edited 1 time in total.
Re: Value Overvalued
No worries.TJSI wrote:Overvalued or not, I would like to thank James99 for the link. It contains a lot of relevant statistics and data.
Thanks.
Re: Value Overvalued
Well, the reason I've been spending a lot of time looking at Value is currently I have VT (Vanguard Total World) for my stocks. Very simple. And I've been thinking about tilting to 'beat the market', since a lot of information seem to point to the effects of Value, e.g. Shiller's Irrational Exuberance. And Credit Suisse Global Investment Returns Yearbooks (2011, 2013, and 2014) seem to conclude that Dividend tilting works, and had me almost convinced to buy Vanguard's High-Dividend index.
But a lot of other sources seem to disagree with its application with real money: John Bogle The Little Book of Common Sense Investing, Charles Ellis Winning the Loser's Game, and Malkiel A Random Walk Down Wall Street
I think in the end I'm not going to tilt because some main Boglehead ideas: Diversification, Minimizing Costs, and something I keep seeing when I see Taylor's posts - Simplification.
When I tilt, I have to sacrifice these... and tilting shouldn't mess with the core.
But a lot of other sources seem to disagree with its application with real money: John Bogle The Little Book of Common Sense Investing, Charles Ellis Winning the Loser's Game, and Malkiel A Random Walk Down Wall Street
I think in the end I'm not going to tilt because some main Boglehead ideas: Diversification, Minimizing Costs, and something I keep seeing when I see Taylor's posts - Simplification.
When I tilt, I have to sacrifice these... and tilting shouldn't mess with the core.
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Re: Value Overvalued
I don't agree that tilting makes one have to sacrifice diversification and minimizing costs, but to each his own. As for tilting not messing with the core, I agree, which is why I adhere to a core-and-explore approach, which lets the bulk of my portfolio rest easy in total market passive funds, whereas the satellite holdings, or "explore" portion of the portfolio, is free to tilt, use active approaches/funds, and anything else that may generate some alpha (hopefully). For investors like me who can't seem to tame their animal spirits completely, it's a good compromise, and with some skill, it may even prove to be lucrative (so far, it has worked rather well, but who knows what the future holds). As Larry Swedroe is fond of pointing out, "there's more than one road to Dublin."james99 wrote:Well, the reason I've been spending a lot of time looking at Value is currently I have VT (Vanguard Total World) for my stocks. Very simple. And I've been thinking about tilting to 'beat the market', since a lot of information seem to point to the effects of Value, e.g. Shiller's Irrational Exuberance. And Credit Suisse Global Investment Returns Yearbooks (2011, 2013, and 2014) seem to conclude that Dividend tilting works, and had me almost convinced to buy Vanguard's High-Dividend index.
But a lot of other sources seem to disagree with its application with real money: John Bogle The Little Book of Common Sense Investing, Charles Ellis Winning the Loser's Game, and Malkiel A Random Walk Down Wall Street
I think in the end I'm not going to tilt because some main Boglehead ideas: Diversification, Minimizing Costs, and something I keep seeing when I see Taylor's posts - Simplification.
When I tilt, I have to sacrifice these... and tilting shouldn't mess with the core.
"Do not put your faith in what statistics say until you have carefully considered what they do not say." |
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Re: Value Overvalued
TJSI wrote:
Garland Whizzer
1+. I also thank James 99 for this link. I found it very interesting. Their valuation data was based on projected earnings which are usually overestimated in my experience and not solid enough to form actionable conclusions. On a relative valuation basis between growth and value I think the paper makes an interesting point. Value, particularly mid cap value and small cap value, may currently be overvalued relative to historical norms. That may not be a shocker since there is so much interest and so many funds and etfs concentrating now on non-beta factor investing. If it is the case, future premiums for small and value would be expected to decrease and growth (which currently looks undervalued relative to historical norms) might produce better than expected long term results. Although this information is not sufficiently reliable to be actionable at this point, keep a watchful eye on factor premium returns going forward. It also makes me feel even more comfortable that most of my US equity is in TSM and my tilts to size and value are modest.Overvalued or not, I would like to thank James99 for the link. It contains a lot of relevant statistics and data.
Thanks.
Garland Whizzer
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Re: Value Overvalued
Suppose for a moment that you're right. Do you have a timing system that switches between the two that you've successfully backtested and checked against out of sample data? If not then this information isn't even theoretically actionable.