Are We the Turkeys of Today’s Stock Market? Also, a New Book

These are two interesting articles which happened to be from the same source, Zerohedge.

http://www.zerohedge.com/news/2017-11-15/moment-gary-cohn-realized-his-entire-economic-policy-disaster

http://www.zerohedge.com/news/2017-11-14/its-turkey-market

In short,  former Goldman COO Gary Cohn who is the White House Economic Council director expected business leaders to start reinvesting in their business operations after tax reform. The tax reform reduces corporate taxes thus freeing up more capital for reinvestments. However, it seemed that while it was the intention, the private sector does not appear to be in line with his thoughts. They are unlikely to reinvest in their operations. In fact, I would suspect that, business leaders would direct their capital allocation strategy to buy-back more shares instead.

Anyway, since the last crisis, they have been net-buyers of their own company stock.

Looking at the PE ratio of S&P500, it tends around 26~. In fact, if you look at the E portion, a lot of companies had purchased stocks to push up the E portion of their business. Hence, if you strip off the incremental EPS from share buy-backs, the “underlying” PE could be around 29-31~ estimate. So are we in a overvalued market?

During previous crisis, S&P500 PE came to 10x before. Your guess is as good as mine.

Since USA’s Thanksgiving should be around the corner, the article also shared that, akin to a Turkey, investors have grown accustomed to rising markets. We expect to eat our cake every day. We’ve effectively shrugged off many bad news and S&P500 continued to rally for a long time. So we became immune to bad news. However, the rude awakening may happen in a very abrupt drop. It is almost like a Turkey waking up and being chopped off. This risk-taking attitude seemed to be reflected in low cash allocations as well.

On a separate note, I started reading The Art of Worldly Wisdom: A Pocket Oracle. It was a gift. The book is very concise and it is pocket-sized. It is easy to carry it around. It is almost like Bible book of Proverbs. The book shares about the strategies on managing oneself’s behaviour and discovering a better way to live your life to maximise favour.

So far, out of the many sharings, here are some of the key takeaways:

1. Be a principled person, be kind to people even to your enemies
2. Learn how to say no at appropriate occassions because you do not want to spread yourself too thin.
3. Do not overpromise and exaggerate. It will start sky high expectations. When you meet their expectations, your audience will not be surprised anymore. However, if you do not meet their expectations, your audience will flee.
4. Never complain because you are spreading negativity and it also shows that you have a lack of self-control.
5. Plan for bad fortune while your fortune is good
6. Win the goodwlil of others.
7. A shortcut to becoming a true person: put the right people beside you.
8. Know yourself: your character, intellect, judgement, and emotions. You cannot master yourself if you do not understand yourself
9. Don’t flaunt your wealth. This creates excessive attention and it creates envy among the people.