I have been watching on the sideline on this " alternatives" while holding with a healthy % of cash and short term bond funds. I welcome another 10% drop as of this Friday - great entry points.
I'm not sure what a "great entry point" is or would be. Admittedly, I have only a cursory knowledge of markets and investing. I do know that the longer the time horizon, the higher (in valuation terms) that entry point can be. So, were I a youngster of 3
5, I'd throw everything into a good index fund (perhaps the Wilshire
5000) and forget about it.
David has pointed out on more than one occassion in his monthly commentaries that equity markets in general don't appear cheap. One quick take-away from his March 2014 piece: "Hence inflows into an overpriced market." (You barely need read between the lines here to fathom the sentiment.)
http://www.mutualfundobserver.com/2014/03/march-1-2014/.
For context, The Dow closed at 16,322 on February 28, 2014.
I try to put things in the widest context possible. I look at the DJI during its late 1990s peak years and find it running in the 9,000-10,000 area (with a close on December 31, 1999 around 11,
500). Now, nearly 1
5 years later, it hasn't yet doubled. So ... by that gage, I don't think we're in an obscenely overpriced equity market here in the U.S. - but not a cheap one either.
There's great danger in numbers. Back in the late 1990s (when TV gave birth to CNBC) with the Dow at 9,000-10,000, a 1,000 point gain would have amounted to more than a 10% increase in value. Recently, with the Dow around 18,000, a 1,000 point gain still garners the same media "hoopla" - but is, in fact, only about a
5% change in value. So, be careful looking at those "ups and downs" and trying to assess changes in valuations.
There's a conventional school of thought which follows something called: "The Rule of 8." Longtime financial commentator Bruce Williams used to refer to it on his radio program. In a nutshell - one's investments should double in nominal value every eight years. One wonders, however, whether in an era of low inflation and 2% yields on Treasuries, that's still a realistic expectation.
If there is an "undervalued" area, it would apoear to be in the commodity related sectors. Returns for Price's New Era (PRNEX), a fund with a solid long term track record, are now in the single-digits going back 10 years. There's plenty of room to run there ... but only if inflation picks up. One question I've been pondering without much success is: What would a fund like PRNEX do in the event of rising commodities prices and a falling U.S. equity market? Watching recent market movements, I suspect a fund like that would hold its own or possibly gain, while the major equity indexes were tumbling. But ...I'm decidedly not sure.
Regards
