# Are the following stocks overvalued?



## Flash (Nov 25, 2014)

Hello.

I have recently started trading stocks and I know I have much to learn. I learn to look at some financial statements, looking for net income, see the profit margins and operating margins looking google finance, and doing the DPS/EPS formula to see if a dividend paying stock is sustainable.

I am pretty much interested in dividend paying stocks, and in a hold long strategy, while getting dividend payout.

Unfortunately I still haven't figured out how to calculate if a stock is overpriced or underpriced. I know the idea is to buy it when it's underpriced.

For this I would like to ask for people who are already seasoned for the following stocks if they indeed are over/under priced. I use BMO and they do have a value analyzer, but not sure if I can trust it.

I am looking at:
TSE:SJR.B
TSE:ENB
TSE:FTS
TSE:LB

Cheers!


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## daddybigbucks (Jan 30, 2011)

Overvalued depends what matrix you are using. CP seems way overvalued but people are buying into the future. If you buying into the future then CP is undervalued.

I don't think you'll really go wrong with any of those stocks in the long term. (I don't know what LB is).

I recently looked at all pipeline stocks in North America and found TRP to be the most undervalued right now. But that is just using P/e.

Good luck and just buy small lots and keep adding as you feel more comfortable.


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## Flash (Nov 25, 2014)

LB is Laurentian Bank.

Now see, I do think it all depends on how you do the valuation.

For example, BMO value analyser says TRP is overvalued (rate of return: -13%). Not sure exactly what they mean by rate of return. They also say CP is overvalued, but again the rate of return is: +4%.

Enbridge has a overvalued rank with a rate of return of: -41%, which is pretty huge. I might give them a call and ask them exactly how their valuation tool works. Don't know if I agree with all of it, but then again, I'm pretty nooby when it comes to it.

And my plan is to just stick with the big boys over the long run. Guess monopoly or oglimonopoly is good when you are going to invest. I remember hating it as a consumer a lot (and I still do when a cell phone bill is 80$ :hopelessness


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## Pluto (Sep 12, 2013)

I agree with your BMO value analyzer. Most stocks are in over valued territory right now. This is not a good time to be looking for value, cause really, in general, it isn't there. I think you will have to be very patient and wait for stocks to get back to normal to good value. 

While you are waiting for good value, and if you are a reader, try "Stocks for the Long Run" by Siegel. He has one or two sections in the book about how and when to buy for the long term investor. It ain't now. Don't buy into the idea that if you are in it for the long run, that it is OK to buy anytime, or OK to buy over valued stocks.

If you want some action in an apparently undervalued stock on an upward tear, have a look at the aapl thread.


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## AltaRed (Jun 8, 2009)

The BMO IL Value Analyzer tool is self-explanatory if one clicks on the links on the Value Analyzer page. It is a 10 year historical look comparing revenue and EPS growth on a logarithmic basis over that time and 'good' companies will have steady growth, not lumpy lines. It then looks at Price versus Fair Value over that period where Fair Value is defined as where P/E ratio equals EPS growth (as quoted from Peter Lynch). It is simply a starting place to consider a stock.

ENB is way overvalued because it's EPS growth has slowed relative to revenue and thus EPS growth is way lower than P/E ratio. Most pipelines currently fall into that category... because they are being treated more like momentum/growth stocks than value stocks. The comparison must also be done between companies in the same industry. Don't compare a bank to a rail to a pipeline using that tool.

BMO IL is not going to be able to tell you much, if anything, about the Value Analyzer. It is a service provided by Recognia.


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## 1980z28 (Mar 4, 2010)

IMHO fts will keep the lights on,I use it instead of a bond fund,I started buying fts many years ago and will not stop has always been good for me at present and into the future.


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## My Own Advisor (Sep 24, 2012)

"Value" doesn't come without some risk.

I think most CDN banks and still modestly priced. LB included.

I think for value plays, I would include COS, HSE, POW, ECA and then the banks (top-7 of them).

I don't think you could go wrong buying and holding any of these companies, long-term, most dividend ETFs, funds, etc. are filled with these companies.


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## Pluto (Sep 12, 2013)

My Own Advisor said:


> "Value" doesn't come without some risk.
> 
> I think most CDN banks and still modestly priced. LB included.
> 
> ...


I'm not sure what you mean by value. 

As far as I can tell, the banks as a group are not good value. To me they are way ahead of their growth rates, and p/e's are way higher than what they were when these stocks were undervalued. The yield is way lower than when they were undervalued. If our new poster buys them with his hard earned money, I fear he will be walking into a buzz saw.


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## Rusty O'Toole (Feb 1, 2012)

Norm Rothery addressed this issue in the latest Moneysense. Every year he does an article on value stocks using the classical Benjamin Graham security analysis. This year he could only find 3 stocks. The smallest number ever.

If you want to know why, look at a chart of the S&P and notice that it has gone straight up since March 2009 and is now in overvalued or overbought territory. 

Noted value investor Charlie Munger said recently that he has not been able to find any stocks worth buying for the last 2 years.

In other words, this may not be the best time to start a long term buy and hold program. If you do, be ready to go to cash if the market cracks. You will know the market is cracking when the S&P goes below its 50 day moving average. When the 50 day goes below the 200 day you have a full blown bear market.


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## Eder (Feb 16, 2011)

Anytime is a good time to start a *long* term buy & hold program.


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## My Own Advisor (Sep 24, 2012)

I'm with Eder. The best time to invest was the past, the next best time to invest is now.

I meant to imply with "value" stocks you are buying what is typically out of favour, so, there's risk in not following the herd.


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## Pluto (Sep 12, 2013)

Perhaps you mean there is risk in following the herd, and less risk in not following the herd. Yes? 


Well, with all due respect, the banks are banging around near their all time highs, and they got there because the herd loves them. 
Stocks in general are not out of favour. The herd believes stocks are the only asset class to make money right now. 

So, to not follow the herd, means to be very very careful presently. And the OP's value analyzer is reflecting that. I hope he puts some faith in that.


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## Pluto (Sep 12, 2013)

Eder said:


> Anytime is a good time to start a *long* term buy & hold program.


Eder, when I started buying stocks, I bought anytime, and I got creamed. I saw my hard earned money evaporate. Can you tell me what it is you buy anytime? 

Also the OP is asking about how to determine value. Did you have an idea of value to offer?


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## CPA Candidate (Dec 15, 2013)

All the pipelines are overvalued. Canadian investors are willing to pay far too much for security and yield. A few of the mid-streamers have broken down recently but still have a ways to go.


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## Eder (Feb 16, 2011)

I bought recently RY,BCE and TRP for my daughters RRSP. She is starting to save for retirement and has a 30 year window. Great businesses at a fair price (sound familiar).
As opposed to sitting on cash , for young people I wouldn't wait.

I have been buying for myself pretty much anytime RY, BCE and RCI.B, I have been and still expect to be richly rewarded.

I have no idea what a value stock is...perhaps it is something different to everyone...most of what I hold are great businesses suitable for a new investor to buy today and hold forever imo.

I doubt anyone knows whether stocks are over priced or under priced...other wise we'd all be market timing billionaires,but I'm sure buying today 1k/month and every month after that for 30 years is a no brainer method of being a millionaire at least.

Pluto. how did your hard earned money evaporate? Did you buy too high then sell for a loss?


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## fatcat (Nov 11, 2009)

Pluto said:


> Stocks in general are not out of favour. The herd believes stocks are the only asset class to make money right now.


it is my understanding that a huge amount of money is still sitting on the sidelines waiting for the black swan to land, take a giant cr#p on all our assets and then fly away again

so, much of the herd is still in the stockpen and not out roaming the market snapping up shares

in the meantime there are plenty of analysts who say that many companies are fairly valued and so the rest of us are buying



> Also the OP is asking about how to determine value. Did you have an idea of value to offer?


take any stock and there are dozens/100's of formulas to value it with widely varying results ... in the end i think we all make some kind of what is essentially an irrational decision (how can it be anything else if no one agrees on value ?) and we hope for the best


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## Gabs (May 7, 2014)

Flash, like yourself I'm a beginner. Plus I've been drinking. That's my disclaimer  However, I'd suggest you read Benjamin Graham's classic The Intelligent Investor as a primer for value investing. One thing Graham stresses is the importance of book value. No one metric should be the basis of your decision to buy a stock but it's a starting point at least. You can determine this by taking the total equity and dividing by the amount of common shares outstanding. This information is found on the company report in it's balance sheet. For the 4 you were asking about for book value I get:

TSE:SJR.B $10.2 per share
TSE:ENB $20.3 per share 
TSE:FTS $31.4 per share 
TSE:LB $52.6 per share 


I'm one of the ones fatcat talks about the bulk of my cash is on the sidelines for several reasons...mainly one s***'s expensive right now and I'm hoping for a crash. If I was to select one from your list it'd probably be LB although I dunno if I'd pick it otherwise. FTS had a run up recently and think it's overpriced atm. If you search other threads you'll see other forum members are selling FTS for this reason. SJR.B currently at an all time high. ENB is overvalued that P/E ratio is way too high. LB not a horrible buy although I'd wait to see how the opec meeting tomorrow affects the market in general. Again I'm a beginner take my advice with a grain of salt.


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## Pluto (Sep 12, 2013)

Eder said:


> I bought recently RY,BCE and TRP for my daughters RRSP. She is starting to save for retirement and has a 30 year window. Great businesses at a fair price (sound familiar).
> As opposed to sitting on cash , for young people I wouldn't wait.
> 
> I have been buying for myself pretty much anytime RY, BCE and RCI.B, I have been and still expect to be richly rewarded.
> ...


Eder, 

I'm glad you said you are dollar cost averaging, as that mitigates the mistake in buying overpriced stock. . At least you will end up buying better value than what is currently presented, and averaging down. 

I'm also glad you said you don't know what value is. I'm curious about you claim that no one can know value. Doesn't sound like a credible claim to me. So you bought RY recently with a p/e of about 14. You paid 14 dollars for one dollar of profit. Previously RY sold at a p/e less than 8. So then one would pay only 8 dollars for each dollar of profit. Obviously the latter is better value. I think it is unreasonable for a value investor to wait until the exceptional p/e of 8 arrives again, so what I do is pick the median p/e. In this case it would be about 11. I wouldn't touch RY until its p/e was below 11. Since RY, and other banks, are near their historical high p/e range, its obvious that the risk is too high to buy them right now. And it is equally obvious that buying them below their median p/e one gets more shares and a higher dividend yield. Its a more efficient use of ones hard earned money. 

However, I'm not trying to talk you out of your approach. I'm all in favour of personal choice with one's own money. Plus, you seem to be buying companies that will be around in 30 years. nothing wrong with that. Nothing wrong with dollar cost averaging. I still wouldn't do it my self, however, because it requires me to over pay for stock. 

I lost hard earned money when I was inexperienced and a guy like you said "buy anytime". I foolishly followed his advice, and soon after stocks plummeted. Not my idea of investing. Seeing the value of my stocks cut almost in half in less than three months got me to change my strategy. Had I been using the value approach, I would have waited for an opportunity, and been able to buy almost twice as much of the same stock. So obviously, given my experience, if someone posts here asking about the value approach, I think that's a wise fellow, and I encourage him to follow through with his ideas. 

Also you are equating a market timing approach with value investing. They are not the same thing. Typically value investors do not try and predict when value will appear. Instead I they determine in advance what a good price would be and wait for it to appear. When it does, they pounce. Then it isn't long before they are in the profit zone for good. In contrast, some brands of pure market timers could care less about buying cheap. In fact many have no interest in buying the bottom, or knowing what value is, or isn't. Some market timers say buying cheap, trying to get the lowest price, is a big mistake. So I don't really understand why you equate market timing with a value approach.


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## Pluto (Sep 12, 2013)

fatcat said:


> it is my understanding that a huge amount of money is still sitting on the sidelines waiting for the black swan to land, take a giant cr#p on all our assets and then fly away again
> 
> so, much of the herd is still in the stockpen and not out roaming the market snapping up shares
> 
> ...


I'm curious about where you get your idea that a lot of money is on the side lines. You could be right, but it would be nice to have some reference for that. In a time of extreme optimism, such as now, all or most of the cash that's available for stock, goes in stock. My guess is when this current rally into all time highs ends, the amount of cash left for stocks will be tiny. At that point, if any big fund wants to buy more of a particular stock, they will have to sell some other stock to buy more. As far as us retail investors go, our cash doesn't amount to more than a rain drop in a monsoon. 

I don't put a lot of stock in what many analysts say. Every bull market has a time near the end when many analysts are still claiming don't worry, be happy, earnings are fine. Learn to be your own guru. You don't need a weatherman to know which way the wind blows. 

I should mention that notwithstanding my concern about overpriced stocks this is still a bull market. And I am holding stocks, but only ones that are going up. When my stocks stop going up, I'll sell and wait and see what happens.


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## Rusty O'Toole (Feb 1, 2012)

That's what you think. What if your time frame is less than 100 years? Or less than 10 years? Anyone who bought the S&P at the peak of the 2001 tech boom just broke even recently. If he bought the hot tech stocks he may never get even.


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## HaroldCrump (Jun 10, 2009)

Pluto said:


> I'm curious about where you get your idea that a lot of money is on the side lines. You could be right, but it would be nice to have some reference for that.


I agree with that...I don't believe this theory of _lots of money on the sidelines_ either.
Whose money?
Retail investors?
They don't got no money...they is broke. Lock, stock & barrel broke.

Institutional money?
We know that margin debt is at an all time high.
Granted, rates are low...but record high margin debt does not square with lots of money on the sidelines.

Pension, annuity, and endowment fund money?
Possibly...although a lot of that money is tied up in secure govt. bonds, as required by the various mandates, charters, and investment objectives.

Central banks have been trying to drive that money into stocks.
They have succeeded to a large extent in driving pension, annuity, and endowment fund money into stocks, real estate, and other risk assets (the "risk on" trade).
The BoJ is the best example...they are directing pension funds to buy anything that moves...stocks, junk bonds, speculative R/E in other parts of the world, etc.

Therefore, there isn't _that_ much fund money on the sidelines.

It won't be possible to keep driving pension fund money into risk assets without significant changes to their charters and mandates.


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## Pluto (Sep 12, 2013)

Good overview Harold. Given the current optimism, I can't imagine much cash being available for stocks by the end of the year. 

And in line with the optimism, its tipster time again: 
Now with US thanksgiving dinners all across the country, I'm imagining people talking about all the money that has been made in stocks, and the tips that will be offered to friends and family. People who have never invested before will get motivated to beg borrow steal and throw their last nickels at some over valued sure thing.


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## fatcat (Nov 11, 2009)

Pluto said:


> I'm curious about where you get your idea that a lot of money is on the side lines. You could be right, but it would be nice to have some reference for that. In a time of extreme optimism, such as now, all or most of the cash that's available for stock, goes in stock. My guess is when this current rally into all time highs ends, the amount of cash left for stocks will be tiny. At that point, if any big fund wants to buy more of a particular stock, they will have to sell some other stock to buy more. As far as us retail investors go, our cash doesn't amount to more than a rain drop in a monsoon.
> 
> I don't put a lot of stock in what many analysts say. Every bull market has a time near the end when many analysts are still claiming don't worry, be happy, earnings are fine. Learn to be your own guru. You don't need a weatherman to know which way the wind blows.
> 
> I should mention that notwithstanding my concern about overpriced stocks this is still a bull market. And I am holding stocks, but only ones that are going up. When my stocks stop going up, I'll sell and wait and see what happens.


this is entirely my fantasy bolstered by what i read

the demand for "safe" investments is insatiable, there aren't enough bonds to go around ... boomers and the wealthy who hold a huge amount of cash have large segments who are seriously risk averse and thus are still sitting on large chunks of cash

we see people on this forum coming regularly with serious cash who are afraid to get in this market

we see pipelines and other "safe" income plays bidded up to the moon

people want safety and we, on this forum don't represent the average investor

i think that a certain slice of the planet is awash in cash and looking for placement but are holding back

this i think is one of the reasons the market continues to dizzying highs

this is my pet theory supported by a complete lack of numbers to back it up


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## RBull (Jan 20, 2013)

My thoughts are similar to fatcat. Unfortunately I also can't come up with much empirical evidence. See links below:

1. There are plenty of people still spooked by 2008. Even though fixed income or HISA returns are poor they will eventually return to equities.

2. There is a growing number of boomers that have or are soon entering retirement and are more cautious about equities- may still be holding cash equivalents but they need more income and FI isn't cutting it now.

3. This next bear market has been talked to death for the past 12 months and it's not unusual to hear retail and professionals talk about building cash waiting for the next real dip. 

4. Investor inflows always grow and peak when markets are running and at tops.


I can relate to a couple of these situations myself. 

http://www.theglobeandmail.com/glob...sed-the-point-of-low-returns/article21412830/

http://business.financialpost.com/2014/01/09/canada-investors-markets-2014/

http://cawidgets.morningstar.ca/ArticleTemplate/ArticleGL.aspx?culture=en-CA&id=655938  7th paragraph


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## fatcat (Nov 11, 2009)

The $400 Billion Bond Mismatch Keeping Bears at Bay Endures

http://www.bloomberg.com/news/2014-...smatch-keeping-bears-at-bay-seen-lasting.html



> The *insatiable demand* for bonds will continue to hold down yields next year, according to Nikolaos Panigirtzoglou, a London-based strategist at JPMorgan.





> “There’s still global demand for fixed income,” he said by telephone Nov. 17. *“It’s deep and entrenched.”*


to me this in one of many signs that there is money on the sidelines that will not move if it sees excessive risk ... safety conquers all


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## HaroldCrump (Jun 10, 2009)

fatcat, I don't think this means what you are thinking it means.
There are two key things going on with bonds these days.

First, the _demand _for bonds (esp. sovereign investment grade rated bonds) is being artificially increased by regulations such as Basel-III, and the US reforms.
These regulations are requiring banks to increase their capital, and is increasing the % of risk-free assets they are required to hold for each $ of loans.
These regulations are creating a huge demand for bonds.
That is what these analysts quoted in that article are experiencing.

Secondly, the _supply _of bonds is also being artificially constrained by Q/E.
Q/E is basically the purchase of bonds by central banks with the express goal of pushing down yields.
The traditional buyers of bonds are pension funds, insurance companies, retirees, and other retail investors following asset allocation models.
They are having to compete against the central banks with unlimited printing presses for the same bonds.
The net result is lower yields.

That is precisely what that Bloomberg article is talking about.

The demand is being increased by regulation/fiscal policy, while the supply is being constrained by central bank buying.

So, while the article is factually correct, I'd caution against drawing the conclusion you are drawing from it i.e. there is lots of capital sitting on the sidelines waiting to come into the equity/bond markets.


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## fatcat (Nov 11, 2009)

HaroldCrump said:


> fatcat, I don't think this means what you are thinking it means.
> There are two key things going on with bonds these days.
> 
> First, the _demand _for bonds (esp. sovereign investment grade rated bonds) is being artificially increased by regulations such as Basel-III, and the US reforms.
> ...


right, i understand what you are saying, so to conclude that retail buyers are looking hard for bonds is incorrect, fair enough, but i still think that the demand for safety is very strong and that must constrain funds into equities

2008 and the recent weird sharp pullbacks and then recoveries are enough to give anyone a stomach ache

i read also that the wealthy are being very conservative with their portfolios and typically focus on wealth preservation as much as growth of capital which would also hold money back

boomers, of which i am one are also sitting on lots of cash since they are very afraid of a deep pullback with no time to recover ... 

but it is only a hunch ... i have no idea where anything like a number for cash sitting on the sidelines could be generated or any way to determine how much of the total investable capital in the world flows in and out of equities


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## Kropew (Nov 24, 2013)

Pluto said:


> Eder, when I started buying stocks, I bought anytime, and I got creamed. I saw my hard earned money evaporate. Can you tell me what it is you buy anytime?
> 
> Also the OP is asking about how to determine value. Did you have an idea of value to offer?


Of course it depends on what you are looking to buy. Stocks like CNR, you could buy anytime and it wouldnt matter as long as it is for the long run. If you truly are a long term investor, your protection is your holding time. If it goes down after you bought, don't sell, you didnt loose money. Assuming that you invest in quality stocks, it will eventually go higher. As long as the price is reasonable and not clearly overvalued, it don't see why anyone would take the chance to lose growth opportunities while waiting to buy.


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## Pluto (Sep 12, 2013)

Kropew, I don't buy the theory that the "long run" fixes mistakes, ie buying over valued stock. It tends to compound mistakes. 
What's the earnings growth rate of CNR? And is it justifying a p/e of 24? I'm not up to speed on CNR's earnings growth rate, but I suspect it isn't > 20. 

do the math. If one bought cnr at its 2007 peak, one has bagged a about a 175% gain to date. But if one bought at the 2009 low, one has bagged a 300% gain to date. That's an example of why Buffett gets 20% compounded annual gains over decades, instead of average or poor results. Buying at foolishly high prices is a mistake. Foolishly high prices is a time to sell if one is so inclined, not buy.


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## Pluto (Sep 12, 2013)

Fatcat RE post 23,

Your post is not really making sense for the following reason. 

One premise is the demand by risk averse investors for safe investments is insatiable . I think that is true, and by definition, that money won't be going into stocks. So you can't count that money as "cash on the sidelines" that is earmarked for stocks. By definition - ie risk averse - they aren't going to buy stocks. This money is owned by people who for the most part have no intention of buying stocks. Also the bond market is many many many many times bigger than the stock market and always has been. there is no way all the money in bonds can go into stocks. 

The best way to determine "cash on the sidelines" that is earmarked for stocks is to look at cash levels in stock mutual funds.
Its the best place because that cash is already committed/destined to stocks. And when the cash in (stock) mutual finds is low I think you will find it is a fairly reliable indication that a rally is over. but you have to keep in mind that tracking cash levels in funds is a bit lagging - they are not up to the minute accounting of levels - so you have to learn to anticipate. 

How does one anticipate? The principle is: in an optimistic and possibly euphoric markets it is wise to surmise that most of the available cash is in the process of being spent on stocks. And when the rise in the indexes pauses significantly you need to consider the possibility that there is no more cash destined for stocks to push prices higher. 

In sum, I distinguish between cash that is destined for stocks vs cash owned by the risk adverse who won't buy stocks. you can't count the latter as "cash on the sidelines", because it's cash that isn't going into stocks period.


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## Pluto (Sep 12, 2013)

Just another thought to this value type thread. The value strategy is not working well right now. I think it is kaput for the time being. but this is not a time to be totally out of stocks. That's why I switch to a momentum strategy: buy stocks that are going up, and when they stop going up, sell.


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## HaroldCrump (Jun 10, 2009)

We cannot assume that any future growth in wages or savings (if any at all) will be used by individuals and households to invest (in any asset class).
It is more likely that people will use that to reduce their personal debt (credit card, mortgage, student loans, etc.).

I know we love to say consumers are such lemmings and sheeple, but IMO most people are rational when it comes to debt reduction.

However, Q/E & ZIRP are basically ensuring that there won't be any wage growth to generate savings to reduce debt.
Capital formation is being destroyed.
For those familiar with Marxian economics, _primitive capital accumulation_ is the basis of capitalism.
That process is being (has been, perhaps permanently,) destroyed by long term QE and ZIRP.


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## Kropew (Nov 24, 2013)

Pluto said:


> Kropew, I don't buy the theory that the "long run" fixes mistakes, ie buying over valued stock. It tends to compound mistakes.
> What's the earnings growth rate of CNR? And is it justifying a p/e of 24? I'm not up to speed on CNR's earnings growth rate, but I suspect it isn't > 20.
> 
> do the math. If one bought cnr at its 2007 peak, one has bagged a about a 175% gain to date. But if one bought at the 2009 low, one has bagged a 300% gain to date. That's an example of why Buffett gets 20% compounded annual gains over decades, instead of average or poor results. Buying at foolishly high prices is a mistake. Foolishly high prices is a time to sell if one is so inclined, not buy.


The 2008-2009 crisis was exceptional... How often do you think crisis like that happen? The point is the following: If you want to accumulate a quality stock such as CNR there is no point in waiting as it probably won't go down soon. If you wait, chances are you will lose growth opportunity. And of course we are not talking about stock like TSLA, NFLX and others... The price has to be reasonable.

ATD.B is another good exemple. It's price is high, but still a buy for the long term investor.


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## fatcat (Nov 11, 2009)

Pluto said:


> Fatcat RE post 23,
> 
> Your post is not really making sense for the following reason.
> 
> ...


fair enough ... i stand corrected "cash on the sidelines" is perhaps a lazy term ... i do think there is money in "safety assets" that otherwise might be shifted more aggressively to equities, i think there is still huge fear about the stock market among retail investors ... i think that is what i am still reading about and hearing from brokers, their clients are still very nervous ... nevertheless, i get your point


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## HaroldCrump (Jun 10, 2009)

Of course, there is a lot of fear among retail investors, and rightly so.
Most middle aged (baby boomer generation & following) have been burnt severely at least twice - 2000/1 & 2008/9.
Some have been burnt thrice, incl. 1987.

In all cases, the market recovered all losses and rose higher sooner or later, but as the saying goes - _once burnt, twice shy_.

That aside, because of financial repression, less and less people are participating in the stock/bond markets to begin with.
This is because the vast majority of middle class people simply do not have enough savings to invest in the stock market.
This is esp. true of the largest stock market country in the world - the US of A.
Where is the money to invest?

The only ones investing in the stock markets are the upper middle classes & above.
The rich and super rich have most of their wealth tied up in the stock market (via their shares in publicly traded corporations).

As you go down the wealth scale, the share of stock market as a % of net worth reduces, and % share of residential R/E increases.
Once you get into the lower middle classes, almost entire net worth is tied up in personal homes (which in many cases could be a trailer).

When a large % of the population has been excluded from participating in the stock market, it cannot go up organically.
For it to go up organically, you need lots of participation, lots of liquidity (real liquidity, not the fake liquidity created by HFTs).

So essentially, the stock market these days are basically a bunch of institutions, pooled money managers, and sophisticated investors trading against each other.
Central banks and sovereign governments have also become stock market traders now via their Q/E, LSAPs, and open-market operations.

To that extent, your claim could be correct in an ironical & diabolical way that there is _lots of money on the sidelines_.
Yes there is - via money printing.
Central banks and governments can keep printing "lots of money" for investing in the stock market.


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## Pluto (Sep 12, 2013)

Kropew said:


> The 2008-2009 crisis was exceptional... How often do you think crisis like that happen? The point is the following: If you want to accumulate a quality stock such as CNR there is no point in waiting as it probably won't go down soon. If you wait, chances are you will lose growth opportunity. And of course we are not talking about stock like TSLA, NFLX and others... The price has to be reasonable.
> 
> ATD.B is another good exemple. It's price is high, but still a buy for the long term investor.


1. "CNR probably won't go down soon" Question - How do you calculate the probability? One way I calculate the probabilities is noticing complacency, extreme optimism, even euphoria, and over confidence, then the probabilities of a continued rising price gets smaller. And I definitely some or all of that in your comments. So look today, CNR down 4.6% on higher volume, indicating institutional selling, the kind you have to be concerned about. And it doesn't surprise me. This kind of thing has happened in every bull market where I have been paying attention to optimistic and euphoric sentiment - ie confident talk implying permanently rising prices, and then a sudden, unforeseen fall. 

2. How often do I think crisis like that happen? The average bull market is about 4.75 years. So I think, on average they happen about every 4.75 years. What do you mean by "exceptional" . Are you trying to imply that bear markets do not arrive on average, about every 4.75 years? 

3. 'And of course we are not talking tsla, nflx,....the price has to be reasonable". What is its earnings growth rate over the last 5 to 10 years? So why is cnr's price reasonable? If you don't know the earnings growth rate, how can you determine what is reasonable? If its price is reasonable, why do we have a 4.6% drop on institutional selling today? In Sept - Oct some institutional sellers hammered CNR down to 62, and just as it gets back near its Sept highs, they are at it again today. Maybe that's telling you something. Notwithstanding the fact that CNR has a great future as a company, I wouldn't get anywhere near CNR stock here. 

When you buy an over valued stock, you are throwing money away. You make your results average at best. This is why Buffett gets 20% annual compound returns over the long term, while the average mutual fund gets around 10. Then they say he is just lucky. It isn't luck. He does the math. The math says you are better off saving and waiting for good value. In a bear market CNR could easily fall 25 to 40%. If it falls 40%, it has to climb 66% just to get back to where it was. Why would anyone want to have to climb back 66% just to break even? Stocks go down a lot faster than they go up, and time is money.


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## Pluto (Sep 12, 2013)

yes there is fear among retail investors, except maybe on this forum. I don't see much fear on this forum. But that doesn't matter because retail buying power can't really move the market much - there is not enough money in retail to move prices. Its institutional buying and selling that moves the market up or down. 

By the time the retail investors you speak of get confident, its too late. They will get creamed. 

Over the last year some new folks have appeared asking what to invest their hard earned money in. I'm guessing that at the depths of the next bear market, no new inexperienced retail investors will show up here for some time wanting to know what to buy. They will wait until the easy money has been made, and the bargains no longer exist.


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## Rusty O'Toole (Feb 1, 2012)

Re: money on the sidelines. For the last 5 years the stock market has gone nowhere but up. This suggests that huge amounts of money have poured into stock investments in that time period.

At the same time, the recovery has been weak, unemployment is still on the high side, wages are not growing but inflation is, so where is all this money coming from? And how can there be a big pile of cash still waiting on the sidelines?


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## namelessone (Sep 28, 2012)

Certainly not under valued and they are boring slow movers with complicated balance sheet.


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