In Search of the Perfect Investment

These are remarkable charts. Long regarded as two of the best oil services companies, their stocks have been chopped:

Had we been able to predict oil’s 50% fall, we would have sold HAL and SLB short. But the good news is that our inviolate Stop Loss Rule kicked us out of them a long time ago. I still have friends who are in love with them….

Oil hit $45 yesterday, down from over $100. Here are charts from Oil-Price.net. Mouse over the time frames to get a different time views.

I have serious fears about this market. This chart from Business Insider pretty well says it all. Stock prices are pricey.

This is the story BI wrote to accompany the chart:

The stock market hasn’t had a great start to the year. In 2015’s first full week, the S&P 500 lost ground and on Monday the price of oil was crashing again and bringing stocks lower, too.

Still, the benchmark index is less than 3% away from all-time highs, and according to Jim Paulsen at Wells Capital, using the median price-to-earnings ratio, the stock market has never been this expensive.

Paulsen’s comments, published this weekend at Zero Hedge, said that, “As of June 2014, the median U.S. stock was priced at a post-war high at slightly more than 20 times earnings! Similarly, at about 15 times, the median stock is also currently priced at a record high relative to cash flow. Finally, the median price to book value ratio has only been higher than it is currently in two years since 1951 (in 1969 and in 1998 which were both followed by significant declines)!”

The standard price-t0-earnings analysts used to measure value in the stock market is based on the market-cap weighted S&P 500, which is skewed by the largest companies in the index. By looking at the median price-to-earnings ratio, Paulsen believes we get a better sense of the breadth of overvaluation across stocks.

The Shiller P/E ratio, which is a price-to-earnings ratio based on 10-year average earnings, is a popular metric and is at its third-highest point ever. Our own Henry Blodget has often used the Shiller P/E to bolster his argument that the stock market is fabulously overvalued and could be primed for a crash.

Paulsen isn’t calling for a crash, but this data certainly should give investors food for thought.

“Rather than suggest an imminent bear market, the widespread overvaluation of the US stock market mostly indicates vulnerability,” Paulsen writes.

“Until the extreme valuation character of the median US stock improves, the stock market may simply struggle to make consistent gains.”

Readers criticized me for kicking out of Google. But the stock has fallen strongly, exceeding my present 10% Stop Loss number. My love for Google is not diminished by its stock slide. I don’t have to be around to watch my wealth evaporate. I’ll be back in — at some stage — but not now. I’m not into catching falling knives.

Meantime, I am pleased that our health stocks  — AGIO, JNJ, UNH, and XLV — have been doing well. (See right hand chart.) I’ve underestimated the BIG biotech boom of late. Maybe it’s time to get into Cramer favs — ACOR, GILD, GELG, REGN? Or, easier, one of the many biotech ETFs?

I picked up this biotech chart from here.

Got a Minute? Let’s Work Out. 

According to a lovely new study, a single minute of intense exercise, embedded within an otherwise easy 10-minute workout, can improve fitness and health.

Just one minute.

Read the NYTimes piece on this study. Click here.

How to read large images. This was yesterday’s. Some readers said they couldn’t see the right side. Solution: Tap or click on the image.

Super latest New Yorker cartoons:

Harry Newton. who worries a little about stock markets. It’s been a nice uptick since the lows of March 2009. Earnings don’t look that buoyant. Commodities are down. China is slowing…. I’m not advocating going to cash. No one can time the market. But I am looking for other investments — like multi-family residential syndications. … More about them tomorrow. Meanwhile, Tiffanys cuts its earnings forecast after Sales disappointed. Not good.

If yesterday you didn’t click over to the article “Why Islam creates monsters,” please do so today. It’s the best piece you’ll ever read on what’s causing all this terrorism. It’s not written by an amateur (like me). It’s written by a Danish psychologist who studied the mentality of Muslims. 70% of the youth offenders in prison have a Muslim background.  Click here.