Today I have been reading lots of comments on a market bottom. Each time I started to compose a reply to say it is a waste of time, but I couldn’t find the right words. I wasn’t going to bother linking to John Hussman’s weekly market comment anymore, but I was gobsmacked when I just read his comments this week. He had no problem finding the words I was after.

“With the S&P 500 down nearly 40% from last year’s highs, and now trading modestly above 10 times last year’s peak earnings level, I continue to view stocks as somewhat undervalued, in that long-term investors can expect the S&P 500 to deliver total returns in the area of 10% annually over the coming decade. This is the largest expected return premium, relative to long-term Treasury yields, since the early 1980’s.

These changes have significantly improved my views about market valuations and long-term return prospects, but I want to discourage any impression that stocks have “hit bottom” or that a new “bull market” is at hand. That sort of thinking isn’t really helpful to investors, who should always be grounded in observable evidence (rather than trying to infer things like bottoms and turning points, which can only be identified in hindsight). Frankly, the idea of identifying those things in real time is wishful thinking. Investors should not rule out a continued bear market, or deeper lows, perhaps early next year (depending on the evolution of the economic evidence). Still, even in the context of a continued bear market, we may well observe a huge 25-35% trading range as evidence develops, pushing and pulling on the perceptions and expectations of investors. Better to be comfortable with uncertainty and thoughtfully adapt to observable evidence as it develops, rather than planting a flag in the ground and being trampled from both sides. read more

Those words are more valuable than gold.

Regular readers will be aware I believe in market timing. That is not at odds with the above. I totally agree it is impossible to pick market tops or bottoms. However, it is possible to adjust your exposure to the market based on valuations. If you read the rest of Hussman’s weekly market comment it should be clear why I believe this.

“The strongest determinant of market fluctuations is change in the valuation multiples that investors apply to normalized earnings, not major shifts in the long-term earnings power of U.S. corporations .” Hussman

Most people fail to buy on fear and sell on greed. I have found simply doing that by adjusting my exposure to markets using my 50-150% investing style combined with the type of companies I invest in to be an easier source of alpha than any fundamental or technical analysis. Using all three in conjunction, now that’s Fusion.

Related posts:

1. Buying at market bottoms and GE
2. Australian Share Market Performance and Returns
3. Hussman Funds Weekly Market Comment
4. Hussman Funds Weekly Market Comment
5. Hussman Funds Weekly Market Comment
6. Hussman Funds Weekly Market Comment