Market Update

June 20, 2013 at 1:45 am 3 comments

While the long awaited correction that was expected this summer by many analysts has not yet materialized, the markets seem to have at least started consolidating, and the volatility has increased.  For the last couple of weeks, the major driving force behind market fluctuations was Fed watch — namely, how soon will Fed start easing off of its stimulus program.  Never mind that such easing will happen only if the economy keeps improving, a good thing, normally, but judging by the market drop today, good actually means bad nowadays.  As always, I would suggest turning off CNBC dramas and instead looking at the real news for the companies that you own.

As has been the case this year, the actual news tend to be fairly positive.  The Fed will indeed start wrapping up its stimulus program, the only question is when — late this year or sometime next year.  As a result, the interest rates will rise gradually, bond prices will decline which will drive more investors from bonds into stocks.  Despite mild uptick in interest rates lately, the dollar actually lost ground to major currencies, even the euro, which is good news for U.S. exporting companies that report results in dollars.   Stocks are reasonably valued at 15 times trailing earnings, a midpoint of valuation range, but very attractive given low interest rate environment.  Earnings estimates going forward for the next two quarters are strong compared to last year, at 7.8% and 13% respectively.  Finally, as housing recovery gains steam, more and more people find themselves regaining positive equity — 1.7 million last month.

While the short term volatility may continue, and could even turn into a market correction, I think the long term positive trends for equity investors remain in place.

Entry filed under: Market Conditions.

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3 Comments Add your own

  • 1. Boris  |  July 27, 2013 at 6:42 pm

    Not quite a comment on your post but a general approach question. If you are faced with an option to exchange a a fully valued (or somewhat overvalued) security of a great business for a significantly undervalued security of a decent business will you make an exchange? With a high chance of probability, the “great” business will do much better over a long term (i.e 5-10 years). Short term 1-3 years, undervalued security will outperform both the market and the security you’re currently holding.


  • 2. Leon Shirman  |  July 27, 2013 at 10:20 pm

    I would stay with a great business. Warren Buffett is known for saying that he would rather invest in a wonderful business at a fair price, than in a fair business at a wonderful price. I agree 🙂

  • 3. Boris  |  July 27, 2013 at 11:00 pm

    I’m in the same camp.

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Blog Author

Leon Shirman's long-term investment philosophy is summarized in his book, “42 Rules for Sensible Investing”, also available from Amazon.


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