.. that is what Charlie Munger, vice chairman of Berkshire Hathaway and Warren Buffett’s longtime business partner, said of the US stock market today.
‘The S&P 500, Dow and Nasdaq close at record highs as coronavirus fears ease’, says Yahoo Finance. Well. The fears may have eased, but is the global economic impact of the virus really known? As always, only time will tell for sure.
The Shiller PE Ratio is the Price/Earnings ratio based on average inflation-adjusted earnings from the previous 10 years, also known as the Cyclically Adjusted PE Ratio (CAPE Ratio). The average is about 15 (market not overbought or oversold), and we’re sitting at 32. So if one believes in investment fundamentals – and why should one not? – yes, the stock market is expensive, and it may be due for a big correction. Curious that this graph does not highlight the height of the dot-com bubble in early 2000, or the onset of the Global Financial Crisis in late 2007. (Those were monster declines, but relatively short-lived. Look at the mid-60s to mid-80s: a down trend that lasted some 20 years).And then there is the case of electric car maker Tesla, with its parabolic move up just last week. That pushed its market cap to well over a $100 billion valuation, the first U.S. automaker to meet or surpass that gargantuan figure. (Toyota is worth some $200 billion).
