For a few years now I’ve been perplexed by how intelligent people can believe in the efficient market hypothesis and the capital asset pricing model. My ideas are still percolating, though I believe focus is one of the main dividers in our beliefs. I spend my days looking at individual trees, looking for market inefficiencies and focusing on them. While believers of EMH and CAPM spend their days looking at the forest. They don’t see the individual trees and market inefficiencies as the forest obscures the mis-pricing.
Whose right and whose wrong? Come on, you know I don’t buy …

In the short run markets can go higher fueled by a high octane mix of government spending and peak margins from unsustainable cost cutting. The US market could provide good returns over the next year or slightly longer. In the long run margins will compress earnings will fall the government stop spending and increase taxes and the US market will fail to provide good long term returns from this point.

With Shiller’s ten year adjusted P/E climbing higher into overvalued territory at 21.3,  I thought it would good to update the S&P 500 charts from these posts from last July. Digging Deeper into the Data 1871-2009 and The Odds are Stacked for Positive Gains.
Click charts to enlarge.

Zooming in on the last decade.

Anyone interested in my prediction? Well here it is. Those who regularly make predictions on markets will regularly be wrong! If that sounds contradictory to my market timing stance then let me elaborate. At extremes I’m prepared to be more …

A few quick graphs today, click to enlarge them. They are all S&P 500 operating earnings, which along with reported earnings are available here. I’m yet to figure out why the sectors sum to greater than the whole, so if you know the reason, please share.
“Operating earnings exclude write-offs, while reported earnings include write-offs. That is the only difference, but it’s a difference that is getting much more important. As recently as the early 1990s, operating and reported earnings were virtually the same. But then we entered the greatest financial …

Too often I embrace introspection and self-doubt. I wish I could embrace the good things.

Motley Fool’s Matt Koppenheffer hit the investing mainstream last week with his article on looking at value not price appreciation. It’s an easy yet worthwhile read, I’ve reprinted some highlights from the article below.  Matt’s main thrust was “our concern shouldn’t be over how much the market has gone up or down, but rather whether its valuation is attractive or unattractive”. Wise words, but I still can’t get the wiggles out of my head.
Perhaps this chart from dshort is a Rorschach test and not manipulated data to present a negative view. …

Is dshort manipulating the fork out of the S&P 500 bear market lows data to present his own world view rather than the true picture? I’ll let you be the judge.

S&P 500 monthly data 1872-2009 highlights probability of up months coming. Could the market really not be random and patterns really exist?

We may be seeing green shoots or maybe they are yellow weeds as Roubini suggests. To me that’s all noise and I wonder why so much of the blogosphere and media is full of speculation on such matters. As even the best economists have a poor predictive track record, why should an average punter like me even bother thinking about it? There are easier and more profitable things to think about, but each their own.

Perhaps some people will ask why bother looking at historical market data. My simple answer is big picture reassurance. The main reason is that I do not want to get bogged down in the here and now of unemployment reports and the like, such stats are psychologically damaging and cloud the mind. They induce fear and you don’t want to go there. The conspiracist in me believes they are promulgated to confuse poor investors and make them freeze instead of act. I say, stand on giants shoulders to get a better view of the future so that you may act now.