Weighing The Week Ahead: Can Earnings Growth Justify Current Stock Prices?

Jeff’s Summary

In the spirit of Chance the Gardener, I am tracking the Springtime themes I developed in my last post. It will not replace the Indicator Snapshot. It is temporary. It might help us to focus on the most important questions for the next few months.

Fool’s Gold

Most of what you will read in 2021 forecasts. As expected, we are seeing precise targets for the market’s 2021 performance. To make such a prediction you need to know all the following:

  • Progress on the pandemic, vaccine, and reopening
  • Translation into overall economy, best sectors, earnings
  • Mr. Market’s perception of these facts

The prediction pundits hardly start on these key topics.

Golden Nugget

I recommend Timothy Taylor’s The Planning Fallacy or How I Ever Get Anything DoneIt has both investment value and personal value. And it well describes crucial current problems.

The “planning fallacy” refers to a psychological theory that people systematically underestimate how long it will take them to complete a given task. My work life is one long example of the planning fallacy. I set deadlines for myself, scramble to meet them, miss the earlier deadlines, rinse, lather, and repeat until the work somehow gets done.

And continuing, after quoting Tversky and Kahneman on considering the distribution of completion time.

At some level, this explanation strikes me as exactly correct. I am overly optimistic when thinking about how long it will take me to do a task because I assume that everything will go smoothly and that I won’t be interrupted or distracted by other immediately pressing tasks. When I edit a paper, I think about the actual editing going smoothly, not about what happens when I hit a snag that takes a day or two to resolve or what happens when the rest of my life sneaks up on me and demands attention.

Quant Corner

I have a rule for my investment clients. Think first about your risk. Only then should you consider possible rewards. I monitor many quantitative reports and highlight the best methods in this weekly update, featuring the Indicator Snapshot.

Indicators

For a description of these sources, check here.

Comment

Technical measures remain bullish in both short and long-term time frames.

My continued bearish posture for long-term investors is based upon both valuation and fears about the continuing recession. As always, I expect good times – but not yet.

With the addition of important data, it is time for a review of Jill Mislinski’s Big Four Indicators.

Guest Commentary

“Davidson” (via Todd Sullivan) has earned our respect over many years. He has an out-of-consensus take on valuation, based upon the SP500 Value Investor Index. The post explains the calculation. The chart below shows the result.

Final Thought for Investors

I had hoped to make some preliminary comments about the impact of the election. I will soon, but right now it is too much speculation for too little gain. Here is a preview of a coming attraction:

  1. What can be accomplished with a thin majority?
    1. Across the aisle efforts
    2. Coalition building
  2. Who are the new key players?
  3. End of the McConnell block. If there is majority support in the Senate, bills have a chance to pass.
  4. The nuclear option (AKA the end of the filibuster).
  5. Appointments expedited for Biden.
  6. Executive orders – expanded by Trump. What will Biden do?

My Portfolios

I continue to maintain higher than normal cash levels as a cushion against the continuing recession. It is possible to do this and still meet your goals provided you do not make extreme decisions. My two major stock programs both returned over 40% last year. My income program met the 9% cash yield goal for the ninth consecutive year.

I am working on a bond substitute program to generate reasonable low volatility returns via an extremely selective REIT program developed along Great Reset principles.

Most important takeaway

Investors turn to the wrong sources for their investment decisions. Who would you trust for information on economic and market prospects?

  • President
  • Stock Market
  • Billionaire investors
  • Financial news
  • Opinions of friends

If your answer is “none of the above” you are on the right track!

Watch the economic and earnings progress. How big is the valley, and how long will it take to cross it?

Year-End Planning

If you have not already done a review of your current portfolio – asset allocation, sector exposure, and risk – you are behind schedule! I will soon have a new White Paper on the bond substitute REIT program. You can get on the list. You can still get my paper on risk. If you act quickly you can also be part of the latest Great Reset Wisdom of Crowds survey. Participants get the first access to results and related discussions.

There is no charge and no obligation for either White Papers or the Great Reset Group. Just make your request at my resource page.

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Disclosure: This material has been distributed for informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any ...

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