Investment Strategies / Non-US Stocks❤
No. of Recommendations: 10
According to John Hussman's latest market commentary the S&P 500 is now more overvalued than at any point in history.
https://www.hussmanfunds.com/category/comment/Hussman has found that the best metric for forecasting future returns of the S&P is market cap/gross value added, which is slightly different than market cap/GDP, and that the most predictable time frame is the next 12 years. His forecast for the next 12 years is an annualized return of -6%. If true, that would reduce the value of the S&P by 52% over the next 12 years.
According to my analysis the best metric for forecasting Berkshire's future return is P/B, by which metric Berkshire Hathaway is presently fairly valued. If Berkshire can continue to grow BVPS by 10%, then one would expect a return for Berkshire of 10%. However Berkshire's return also depends on the return of the S&P. Perhaps, with the S&P so extremely overvalued, using a multivariate analysis with two metrics for Berkshire, P/B and S&P market cap/gross value added, would give a better forecast for Berkshire Hathaway than P/B alone.
No. of Recommendations: 9
"The president of the Hussman Investment Trust is seemingly always bearish, even in enduring market rallies, and his Hussman Strategic Market Cycle Fund (HSGFX) is down 55% since December 2010."
pretty rough over 15 years
John Hussman probably isn't someone you want to take investment strategy advice from.
No. of Recommendations: 3
Broken clock theory— he might be right this time!
No. of Recommendations: 14
Broken clock theory— he might be right this time! To be a bit more generous to the vellow, maybe he's more like one of those clocks that just shows the day of the week. (I have one in my office). He just doesn't change stances very often.
He was pretty bearish in 2007, and pretty bullish in 2008, not an entirely broken clock.
The problem is that assuming that market valuations will average at around the same level of any specific past time interval is a very tricky assumption. Even the slightest changes of the history you look at give very different conclusions about what would constitutes "normal". I think the line of reasoning is meaningful, but much less precise than inspecting history might suggest.
I certainly agree that medium to long term forward returns for the broad US market are certain to be poor, for the simple reason that one is not getting very much in the way of long run future average earnings for your dollar today. The total real corporate earnings can't grow over the long run any faster than the economy, which has a speed limit. It's the earnings that ultimately drive the value, that ultimately drives the slope of prices. But I no longer think that says much about what future market multiples will be like in any particular time frame.
For a fun geeky paper about why valuations can get crazily high so easily in recent years, more or less the antithesis of Mr Hussman's implied foundation in mean reversion, read this paper
https://www.nber.org/system/files/working_papers/w...If research papers aren't your thing, here is a blog post that captures a bit of the thinking
https://www.investing.com/analysis/what-is-the-ine...Or, if you want an even shorter introduction to the key notion:
"G&K solve this riddle by defining an inflow as an investment into an investment fund that must be put to work in the stock market, and which was not funded by a stock sale. And their key insight is about that “must”. The great majority of stock market investment takes place though funds that have rigid mandates governing their mix of stocks and other assets. The result is that when they put money to work in stocks, the funds are price insensitive. Oddly, this means that $1 of flows can drive up the capitalisation of the stock market by a lot more than $1. "from
https://www.ft.com/content/edbd1838-6f18-46dd-a080...Jim
No. of Recommendations: 3
Hussman has found that the best metric for forecasting future returns of the S&P...
I could make sooo many comments about Hussman finding the best forecasting metric. I won't. But oh man. I want to. But it feels like clubbing a baby seal or something. But it is teed up right in front of me ready to go...No. I can't, I can't, I can't. Maybe just one? No. I'm not going to.
No. of Recommendations: 9
Here are the returns of Hussman's flagship Strategic Growth fund vs the S&P:
https://stockcharts.com/freecharts/perf.php?SPY,HS...I find it amazing to contemplate, and instructive. Hussman correctly understood the tech bubble, which was the context in which his fund was founded. He also recognized (in 2003) that the slump was over, and managed to stay on the right side of things for another four years. By 2007 he had accumulated an impressive record during a period when the broad market returned less than nothing in real terms. His failure to navigate the financial crisis of 2008 hardly counts as an error; but his failure to recognize the bull market that followed is a mistake from which he appears to have learned nothing, and never recovered.
The literature on his site emphasizes the importance of discipline for investing. I couldn't agree more. My question is how anyone can look at his results and conclude that what they are seeing is discipline at work. BRK exemplifies discipline. So do the Bogleheads. This is something else entirely.
Baltassar
No. of Recommendations: 8
The following is from my online broker’s newsletter.
DJ Why You Should Pity The Poor Money Manager, Just Once -- Barron's
By Allan Sloan
It isn't often that I feel sorry for people who make millions of dollars a year handling stock investments for hedge funds and institutional funds. But this is one of those rare times.
Why do I say that? Because these days, with stocks at prices that strike many people as irrationally high, investment mavens at hedge funds and institutional funds who are uneasy with the market's level have a difficult problem -- one that may pit their personal financial interests against those of their investors.
And this problem may help explain why stocks keep making new highs and the market's price/earnings ratio keeps climbing despite a slowing economy, stubborn inflation, and President Donald Trump's ever-changing, erratic policies.
Let me explain.
If you are knocking down a seven- or eight-digit annual income for managing the stock portfolios of a hedge fund or institutional fund, and stock prices strike you as being way too high, you may be taking a serious risk to your personal finances if you decide to make substantial stock sales and put the proceeds into something less volatile, such as cash or short-term Treasury securities.
Why do I say that?
Because if you are running a hedge fund or institutional fund and stocks keep going up after you've sold them -- which could well happen -- you run the risk of having some major investors cash out because they're angry about missing out on the profits they would have made had you not sold. If that happens, the income you get from running your fund, which is based largely on its size, will go down.
If you think that is a ridiculous thing to worry about, let me offer you some history involving trader Michael Burry.
Burry, who as you may know is the subject of the book and movie The Big Short, opened a hedge fund in 2000 and attracted big investors by showing terrific results trading stocks. But in 2005, he decided -- rightly, as things turned out -- that securities based on subprime mortgages were priced far too high. So, he began to divert some of the fund's money from stocks and began to short subprime-mortgage securities.
When he told his investors what he was doing, significant amounts of money fled his fund. Ultimately, of course, Burry came out way ahead on his bet against subprime-mortgage securities. But the lesson that many people -- especially money managers -- take from Burry's history is how very risky it may be to your income to change strategies radically when you have clients who can withdraw their money with little notice.
I tried to talk with Burry about his history and to see what he thinks about the current stock market, but he declined, via email, to discuss those topics with me.
A far more prominent -- and much larger -- investor, Warren Buffett of Berkshire Hathaway, has said that he is highly skeptical about current stock price levels. Berkshire's balance sheet says it all. As of June 30, the company owned a staggering $339.8 billion in cash and short-term Treasury securities.
This cash poses an interesting problem for Greg Abel, whom Buffett has picked to replace him as Berkshire's chief executive next year. Abel will have to figure out whether to do something with that cash or whether to let it keep piling up.
The seemingly irrationally rising market also poses an interesting problem for money managers who, unlike Buffett and Abel, need to worry about investors fleeing if they begin to replace stocks with less-risky investments -- and reducing managers' income as a consequence.
Please understand that I'm talking about managers of hedge and institutional funds, not managers of retail-oriented mutual funds.
Retail funds generally confine themselves to a single asset class, such as stocks or bonds. So, these funds almost never make large, sudden changes in their asset classes. And the funds' retail investors generally aren't trigger-fingered the way some major hedge fund and institutional fund investors are.
Obviously, I can't prove that hedge and institutional fund managers' concerns about the impact on their own incomes if assets flee is one reason that they aren't dumping their stocks en masse. But I am quite sure that it plays some role, conscious or unconscious, in the way that they manage their portfolios.
That's why I feel a little bit sorry for the high-income types who manage money for hedge and institutional funds. They have a choice between risking some of their own incomes to reduce possible risks to their investors or keeping investors' assets heavily in stocks and simply hoping for the best.
Because nothing in the stock market is forever, sooner or later some six-sigma-type event may well put enormous downward pressure on stock prices, prompting hedge and institutional funds to sharply reduce their stockholdings to meet surging redemptions, minimize risk after the fact, or both.
But until then, I can't help but believe that we're unlikely to see massive sales by these funds -- which, I suspect, is one reason that stock prices are remaining at such giddy highs.
Full disclosure: My wife and I own Berkshire Hathaway stock.
No. of Recommendations: 0
"This is something else entirely."
Arrogance.
and pessimism sells
No. of Recommendations: 14
The "Buffett Indicator" is currently at an all-time high. As of late September 2025, the ratio sits at 218%, which is significantly above its long-term average and higher than any previous peak in its history.
"If the stock market has a period of outperformance of its long-term return, it is inevitably followed by some period of underperformance.
But people being optimistic and greedy by nature take the recent short-term outperformance as a sign of good things to come, rather than a warning of bad things to come." -Seth Klarman
https://buffettindicator.net/#google_vignette
No. of Recommendations: 9
Because if you are running a hedge fund or institutional fund and stocks keep going up after you've sold them -- which could well happen -- you run the risk of having some major investors cash out because they're angry about missing out on the profits they would have made had you not sold. If that happens, the income you get from running your fund, which is based largely on its size, will go down.
...
The seemingly irrationally rising market also poses an interesting problem for money managers who, unlike Buffett and Abel, need to worry about investors fleeing if they begin to replace stocks with less-risky investments -- and reducing managers' income as a consequence.
I think there is a subtlety to this dynamic mentioned in the paper I referenced up-thread which I never fully appreciated before: mostly, they don't because they can't.
The great majority of "new" investment into equities globally in recent years ("new" in the sense of not being funded by selling a different stock) is done via managed funds or portfolios of one sort or another. A substantial majority of their managers have absolutely no flexibility in their stock allocation. Either 100% because they are a long-only stock fund, or a fixed percentage because of some inflexible target mandate, even if that mandate is long/short like a 130/30 fund. In that situation, the managers might be screaming for permission to have fewer dollars allocated to stocks, honourably and without any regard for their personal career risk, but their hands are tied. Every time a dollar comes in the door, they MUST buy more stock, no matter what price it's at.
Further, from whom are they going to buy it? With so much of the equity held in portfolios with fixed allocation mandates, it takes a very big bump in price to tempt anyone to sell. Big enough for fixed-allocation funds to get out of balance. So, we see irrational bull markets--even if almost every participant knows it's irrational and wishes not to participate. They are doing it because the DCA crowd (among others) has hired them to do it.
The paper is interesting because they claim to have found a way to put an actual dollar value on the amount that the prices have to go up when "new" money arrives. They estimate that each new dollar into equities (not coming from sale of other equities) raises aggregate equity market cap by $3-$8 on average, around $5 as a working hypothesis / rule of thumb. A pretty extreme amount, if true. They estimate that stock buybacks in aggregate have a much smaller effect, for the simple reason that there is also a whole lot of stock issuance counteracting it.
Jim
No. of Recommendations: 7
The "Buffett Indicator" is currently at an all-time high...
Random data point:
The Economist mentioned in passing a couple of weeks ago that Palantir might be the most ostensibly overvalued company of all time.
(this of course is not the same as saying that the price is about to fall...)
TTM revenue per share $1.49, stock price $177.57.
Jim
No. of Recommendations: 9
There is a difference between reading about the 1929 crash and living through it. Likewise any of the significant crashes since then (or before then).
We now have a generation or two of investors who, while they lived through the COVID zig-zag and meme investing, have never felt the bottom falling out of a bull market "for no reason".
I guess they feel "this time it's different" because a "great" businessman is finally running the show instead of mere politicians.
When the music stops, make sure you know where all the chairs are located (hopefully you already have one cheek properly located).
Jeff
No. of Recommendations: 1
I'm curious to know... if there is so much stock that is so much overvalued, this seems like it would make it a really good idea for the companies whos stock is overvalued to issue more shares. To raise the rate at which they pay employees with stock vs cash. To try to buy stuff with warrants or shares instead of cash. Heck, make it easy: to do Public Offerings to raise billions of trillions of dollars buy selling overpriced shares.
Does this happen much? Is this happening much? If not, why not?
Thank you for attention to this matter!
R:)
No. of Recommendations: 0
GMO Funds forecast a real, annualized return over the next seven years (the period that they consider to be the most predictable) for US large cap stocks of -5.7% to -2.7% (depending on interest rates).
https://www.gmo.com/americas/Whatever the best forecast is, it's not likely to be high, or even average.
Furthermore, corrections are usually sharpest in the first year or two, so whether the real, 7-year return is -5.7% (GMO) or the nominal, 12-year return is -6% (Hussman), the 1-year or 2-year or 3-year return can be expected to be lower than the 7-year or 12-year annualized return. My wild guess would be that we will see a significant correction (say, 30% or more) within the next one to three years for the S&P, and an annualized return over the next 7-12 years for the S&P that is lower than T-Bills.
rrr12345
