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'A bit of a bubble' in stocks: Berkshire director


VersaillesinNY
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I think more specifically the bubble is forming in ETF's - basically the S&P 500 index.  It's still early, but I noticed over the past couple of years everybody who I talk to about personal finance says "you should definitely be in ETFs" for a number of reasons.  Generally I agree with the reasons, but whenever everybody says the same thing ("gotta be in tech", "gotta be in real estate", "gotta be in tulips"), it doesn't end well.  I think it's time to start paying attention.

 

Anyone know where to get valuation metrics on S&P 500 vs. non S&P 500 in aggregate?  I'd be interested in the relative ratios like P/E, P/B, etc.

 

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I don't mean to be rude; merely typing in "S&P 500 earnings history" gives you all your answers.

The question was how expensive the S&P500 is relative to the US stocks that are outside the index. That's not that easy... Could be interesting, but I doubt that ETF's have a huge impact because there are plenty of stocks outside the S&P500 that are also in some ETF. That said, with more money going to ETF's it almost must be that markets get less efficient.

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I don't mean to be rude; merely typing in "S&P 500 earnings history" gives you all your answers.

The question was how expensive the S&P500 is relative to the US stocks that are outside the index. That's not that easy... Could be interesting, but I doubt that ETF's have a huge impact because there are plenty of stocks outside the S&P500 that are also in some ETF. That said, with more money going to ETF's it almost must be that markets get less efficient.

 

It's a form of kurtosis.  Markets driven by ETFs should tend to make little distinction among good and poor prospects for many companies while becoming enamored of a few stocks that reach bubble valuations. (hyper normal for most stocks as the market rises, but near the peak a fat tail for the few favored industries and stocks.)  Then, when the bubble pops, a fat tail on the downside with huge sell offs for over priced or low quality/value stocks.

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I think more specifically the bubble is forming in ETF's - basically the S&P 500 index.  It's still early, but I noticed over the past couple of years everybody who I talk to about personal finance says "you should definitely be in ETFs" for a number of reasons.  Generally I agree with the reasons, but whenever everybody says the same thing ("gotta be in tech", "gotta be in real estate", "gotta be in tulips"), it doesn't end well.  I think it's time to start paying attention.

 

Anyone know where to get valuation metrics on S&P 500 vs. non S&P 500 in aggregate?  I'd be interested in the relative ratios like P/E, P/B, etc.

 

Try http://www.spindices.com/

 

Go to Index Family. Under Equity, choose U.S. Then click on S&P 500. On the left you will see a box called Additional Info. Under that, choose Index Earnings. An excel file will download and you can browse the worksheet for data like earnings, sales, dividends, and book value which you can then compare to the index price to come up with p/e, p/s, p/bv, ROE, dividend yield. Useful and free.

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  • 2 weeks later...

I am very interested in PSX - Phillips 66

Look at the return on capital employed in the Chemical division!

http://www.phillips66.com/EN/about/our-businesses/chemicals/PublishingImages/c1.jpg

 

"As value investors, "our style is really bottoms up. So we're looking at individual companies and try to find a cheap one, find something that's misperceived," said Witmer, who joined the board of Warren Buffett's Berkshire this spring.

 

"I think one area is refining, and in particular Phillips 66, which is a position of ours," she said.

 

Besides refining, Phillips 66 also has a chemical business that's a "great niche, very high return on capital," and a "midstream business that moves oil and gas around," she said.

 

Witmer said she bought shares of Phillips 66 when it was spun out of Conoco Phillips in the spring of 2012. "We've [also] bought some since, even at around these current prices.""

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I think more specifically the bubble is forming in ETF's - basically the S&P 500 index.  It's still early, but I noticed over the past couple of years everybody who I talk to about personal finance says "you should definitely be in ETFs" for a number of reasons.  Generally I agree with the reasons, but whenever everybody says the same thing ("gotta be in tech", "gotta be in real estate", "gotta be in tulips"), it doesn't end well.  I think it's time to start paying attention.

 

Anyone know where to get valuation metrics on S&P 500 vs. non S&P 500 in aggregate?  I'd be interested in the relative ratios like P/E, P/B, etc.

 

I have thought about this before...as more and more people "index" their portfolios, there are fewer and fewer investors making relative bets.  I think the effect of this is more and more correlation (people are trading the index up and down, not individual stocks).  In addition to that, because fewer investors are making relative bets, it allows for more pricing inefficiency; but inefficiencies will take longer to correct.

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