I don’t usually attend these because my feeling is that if market strategists/economists could make predictions accurately they would be wildly rich. And yet there aren’t many economists or market strategists in the Forbes rich list.
But I did tune in to this session, just to get a sense what of what was happening, the risk was that I would be influenced by it subconsciously.
Anyway here are the top 3 points:
1. Markets are on the peak of the profit cycle, there are more companies issuing beat and raise guidances now than the past few years. This is not a bullish sign especially during the late stage of a bull cycle. The after effect is that analysts will raise numbers for next year, and the expectations will be higher and narrower. Remember: in late 1999 and early 2007, companies were issuing record beat and raise guidance as well. Just before it ended in tears.
2. I disagree that now is the time to diversify. The time to think about diversification was yesterday and if one did not plan have a plan previously, then diversifying now would just be messy. My approach to the market top is simple: if I did not buy expensive, and the companies are of a reasonably good quality then I am just gonna SOYA, to use Charlie Munger’s term. ( on a practical side, I will continue to draw down from Port B for living expenses, while I leave my Port A alone).
3. The real key takeaway from the session is this: forward P/E should be moderated as the current estimates are too bullish. Next five years analyst estimates, which I heavily depend on, should likewise be tempered down. Currently in my valuation exercise, I usually take a 1-1.5% discount from the average analyst estimates \[ if the estimates are 8.9, 9.3. 10, 11 and 12, I usually take 9% as the growth rate\], but perhaps I should apply a wider margin of safety further.
In conclusion: I found the session informative, I agree with the market strategist’s prognostication, but I don’t agree with his remedies.