S&P 500 Trend Chart
Just a quick note on the S&P500 levels on this first day of 2009. The best fit regression trend line, using the data from 1950 through January 1 of 1995 (before the run up to the high tech bubble) provides a feel for the degree to which the market is over or undervalued.
At this point, it appears the market is fairly valued or marginally undervalued. This, of course, doesn’t mean the market can’t or won’t fall further. Just as investors can experience irrational exhuberance, it can suffer from irrational depression, as well.
In my view, however, the better part of valor is to purchase value stocks and do so without apology. Because earnings are suspect, it makes better sense to value equities based on tangible assets, strong products, strategic prospects, and the presence of sound fundamentals (considering its debt posture, cash position, and all the other metrics taught in business school). But the declines since the peak seem sufficient to return the market back to normal levels. For my part, I have taken off my hedging short position, so my portfolio is 50/50 cash/equities — minus a decent chunck of change spent buying my son a car this week. He is a good boy, but I don’t think the future return on investment will exceed what the market has to offer, now that he is no longer considering med school and a career as a plastic surgeon.
