Down goes the Dow

I see investors expecting a certain return and moving out the risk curve.

my portfolio of microcaps has gone through the roof - some kind of wave of risk appetite has washed in, yes.

I sell when one rises 25% over where I bought it, and I've sold maybe 8 in the past two weeks, which is unusual.,

So now...do I pocket earnings and stand aside, or keep playing with the momentum?

I would pocket my gains and be happy. You are playing the same game as others with no rationale other than the sport of it. Of course the fun ends when the losing begins.

Ghost of Igloi wrote:

Robert Butrick wrote:

A couple of clarifications:

3. Investors are willing to pay more because EPS has risen steadily over the past three years and is projected to set record highs in the coming quarters.

4&5. Backward looking metrics with relatively short time frames typically do a poor job of predicting long term returns. The CAPE 10 is particularly poor in this area.

More clarifications:

#3. Since 9/30/2014 S&P 500 EPS has fallen 1.8% and the index has climbed 28%. Most of that rise has been since 11/4/2016 days before the election.

#4&5. CAPE 10 is a better predictor of future investment returns than retail investor behavior which typically sees them enthusiastically buy at the top and sell at the bottom in despair.

#3. You are using old data. The Q3 EPS numbers are at a record high.

#4&5. I don’t believe most investors buy at the top and sell at the bottom. If you have proof, I’d love to see it.

Robert Butrick wrote:

Ghost of Igloi wrote:

More clarifications:

#3. Since 9/30/2014 S&P 500 EPS has fallen 1.8% and the index has climbed 28%. Most of that rise has been since 11/4/2016 days before the election.

#4&5. CAPE 10 is a better predictor of future investment returns than retail investor behavior which typically sees them enthusiastically buy at the top and sell at the bottom in despair.

#3. You are using old data. The Q3 EPS numbers are at a record high.

#4&5. I don’t believe most investors buy at the top and sell at the bottom. If you have proof, I’d love to see it.

looking backward is the Achilles heel of valuation obsessed investors.

Correct, earnings should be at record highs in the 3Q.

And they are up around 40% from the energy bust nadir.

that's why the market is moving higher - companies are making more and more money.

Ghost of Igloi wrote:

I would pocket my gains and be happy. You are playing the same game as others with no rationale other than the sport of it. Of course the fun ends when the losing begins.

The only thing with no rationale is buying in to your comments over the past 3 years as it relates to what the market has done. For those that did, that's when the fun ended.

Robert Butrick wrote:

Ghost of Igloi wrote:

More clarifications:

#3. Since 9/30/2014 S&P 500 EPS has fallen 1.8% and the index has climbed 28%. Most of that rise has been since 11/4/2016 days before the election.

#4&5. CAPE 10 is a better predictor of future investment returns than retail investor behavior which typically sees them enthusiastically buy at the top and sell at the bottom in despair.

#3. You are using old data. The Q3 EPS numbers are at a record high.

#4&5. I don’t believe most investors buy at the top and sell at the bottom. If you have proof, I’d love to see it.

"#3. You are using old data. The Q3 EPS numbers are at a record high."

You must be more than a little confused. Only 17 companies have reported earnings for Q3.

"#4&5. I don’t believe most investors buy at the top and sell at the bottom. If you have proof, I’d love to see it."

Google "Dalbar study investor behavior."

agip wrote:

Robert Butrick wrote:

#3. You are using old data. The Q3 EPS numbers are at a record high.

#4&5. I don’t believe most investors buy at the top and sell at the bottom. If you have proof, I’d love to see it.

looking backward is the Achilles heel of valuation obsessed investors.

Correct, earnings should be at record highs in the 3Q.

And they are up around 40% from the energy bust nadir.

that's why the market is moving higher - companies are making more and more money.

"looking backward is the Achilles heel of valuation obsessed investors"

More often extrapolating current market moves into the future is a far bigger mistake. Think 3/2000 and 10/2007.

"Correct, earnings should be at record highs in the 3Q.

And they are up around 40% from the energy bust nadir."

Forward EPS is a non-GAAP number. That said, Q2 2017 was projected at $32.69 on 6/30/16 and closed quarter at $30.51. the GAAP EPS was $3.50 lower at $27.01.

"that's why the market is moving higher - companies are making more and more money."

Interesting, in a circular logic, then why did the market move higher since 9/30/2014 when EPS was falling. The reality is investors are paying a higher price for a unit of earnings.

mellon wrote:

Ghost of Igloi wrote:

I would pocket my gains and be happy. You are playing the same game as others with no rationale other than the sport of it. Of course the fun ends when the losing begins.

The only thing with no rationale is buying in to your comments over the past 3 years as it relates to what the market has done. For those that did, that's when the fun ended.

The only rationale you have for investing is "I buy an index or stock, the market moves higher, so I am brilliant." You will eat that thinking soon enough.

market moved higher in 2014 because investors saw through the oil collapse - they were smart enough to understand that SP500 earnings would look terrible for a few quarters because the oil giants lost all earnings. But they bet correctly that when oil profits rebounded, so would sp500 earnings.

They looked over the valley.

I suppose that in 3/2000 and 10/2007 they looked over the valley and found out it was the Grand Canyon. Sorry but I find that is nonsense. Why? Because the move up in the market far exceeded any improvement in earnings. The facts are quite simple, investors are paying more for a unit of earnings. I guess one can somehow extrapolate that those buying the market today are smart investors.

Ghost of Igloi wrote:

Robert Butrick wrote:

#3. You are using old data. The Q3 EPS numbers are at a record high.

#4&5. I don’t believe most investors buy at the top and sell at the bottom. If you have proof, I’d love to see it.

"#3. You are using old data. The Q3 EPS numbers are at a record high."

You must be more than a little confused. Only 17 companies have reported earnings for Q3.

"#4&5. I don’t believe most investors buy at the top and sell at the bottom. If you have proof, I’d love to see it."

Google "Dalbar study investor behavior."

The Q2 data is also incomplete, but you have no qualms in using that. What’s good for the goose is good for the gander.

The Dalbar study points out that investors are typically more loss averse than risk averse. You seem to think that selling/buying during a decline/incline is equivalent to selling/buying at the very bottom/top. Dalbar does not support your statement.

Wrong again, Q2 2017 is complete. Go the S&P website.

Statman Carothers wrote:

original idiot investor wrote:

I can't tell whether that answers my question about average P/E...?

It doesn’t. Igy thinks median and average are the same thing. They are not.

Explain the differences bertween average, mean, and median without looking them up, Isaac Newton.

Prof Tony Martin wrote:

Statman Carothers wrote:

It doesn’t. Igy thinks median and average are the same thing. They are not.

Explain the differences bertween average, mean, and median without looking them up, Isaac Newton.

Anyone with a middle school education can answer that. The average, or arithmetic mean, is the sum of the data elements divided by the number of elements. The median is the middle (center) data element when the elements are ranked in increasing order.

I’m shocked, but not surprised, that you did not know that.

Ghost of Igloi wrote:

Wrong again, Q2 2017 is complete. Go the S&P website.

Both Q2 and Q3 are incomplete.

Prof Tony Martin wrote:

Statman Carothers wrote:

It doesn’t. Igy thinks median and average are the same thing. They are not.

Explain the differences bertween average, mean, and median without looking them up, Isaac Newton.

Actually, mean,median and mode are all measures of what we call "average".

Howard Silverblatt wrote:

Ghost of Igloi wrote:

Wrong again, Q2 2017 is complete. Go the S&P website.

Both Q2 and Q3 are incomplete.

Suit yourself, then use Q1 2017 LTM EPS of $100.29 as your benchmark, $5.67 below 9/30/2014 LTM EPS of $105.96.