Firing shots by regular columnist again

Saw this on the market watch. http://www.marketwatch.com/story/irrational-exuberance-part-3-2013-10-28?link=MW_popular

Speed read:

• Stock valuations in bubble territory - S & P 500 Dividend Yield 2%, Shiller PE ratio hitting 24X
• Bears turn bulls - David Rosenberg and Noriel Roubini
• No one wants bond
• Leverage - 2010 ~ 2013 non-financial corporation borrowings increased by 1 trillion. It has a total of 14 trillions outstanding now.
• Mum and pop are buying

In my yesterday posting, I was thinking we are the beginning stage of a bubble because a small group of people are getting cautious. Most of the participants are getting excited but the sentiment is not extreme enough and I hope they don't get more extreme some more. When it falls - it is going to be extreme too except it will be on the opposite direction. I was lamenting that I might need to sit out from the market longer than I thought.

Wall of worries???

Saw this in the Star. It is quite rare that professionals are acknowledging the market is getting pricey. It is also very rare that they expressed they are getting worried of limited upside potential. For the market to roll over with this kind of headlines is quite rare too. Or is it just climbing wall of worries? Me think more people will need to be sucked in before the big flush is triggered.

Market Commentary

The 2014 Budget dust is finally settled down. I am not sure whether most people will buy on rumour and sell on news. Or instead of keep looking at the defensive side, what if there is a follow through buying??? especially on the mid and small cap. Momentum is still good but people need to be aware that they are getting more expensive. Mid cap is about 20% premium and selling for 14X PE. Small cap is about 70% premium and selling for 12X PE. I believe even with re-rating of small cap after being depressed for years, 12X PE is really difficult to justify. At these level of valuations, a lot of growth needed to keep pace with the valuations. Those people who are surfing out  need to be careful when the tides are out, you need to be able to land gracefully.  The real reason of price appreciation now is largely because of PE expansion.

Over in the US, I keep hearing the market is fairly valued. Judging from PE ratio alone, it is no where near in bubble territory. True. However, what is troubling is the E. One of the market analysis that I follow regularly Hussman weekly pointed out a couple of months ago that the current corporate/GDP is 70% above historical norms. A reversion to mean will cause the E to contract pretty badly.

He pointed out that the parabolic rise of S&P 500 may carry the market from around 1,700 to 1,900 and I won't be surprise it may overshoot to 2,000 level.  That means 13-15% potential overshoot from this level.

I rarely talk about my investment with friends mainly to avoid peer pressure. Some think I am running away from facing the reality but it is precisely this the reason why people get suck in and over stay in the market. The moment they are out of the game, they are automatically in the under-performance bucket.

I am happy to be under-performing temporarily. I am also quite happy with what I am doing now - nothing very spectacular - just arranging daily mundane activities.

Men vs Women Spending Habits

I was at first thinking to continue with the millionaire next door ...... part IV write-up but decided to break the routine a little bit.

I thought these info graphics are somewhat very universal even though the studies were done in the UK. It reinforces my conclusion that men and women are very different when come to spending habits. Men may make infrequent purchase but when they did - the bills can be quite big. A woman on the other hand makes frequent purchases but the amounts are usually not that damaging though it can be perceived as wasteful such as, the 10th pair of shoe but it's only cost $ 29.90 dear. A man may make infrequent purchase, for an example a Porsche but it's only cost $ 399 k dear. Men and women have one common ground though - flaws. The next time you get into couple money fight, just be a little gentle with each other.

Explore more infographics like this one on the web's largest information design community - Visually.

The millionaire next door.......Part III

Life is full of contradictions.......it's very irony that those jogging in a park regularly have very slim or fit bodies. Wealthy people get wealthier but they don't need money. Those have money will save even more and not spending it. Those fat people will continue to eat KFC or big Mac. Those good in play great defense game in financial management tends to allocate more time and energy to compound wealth even more by days. I suspect too those reading my entries do not need more advice. Those people who are frugal will be frugal without the need to be told.

It's a old classic argument of NATURE vs NURTURE. Are some people coded genetically good in money management or some people simply good because they were well schooled? Or is there a third explanation? That alternative is doctrine of FREE WILL. There is a strong argument in Christianity whether salvation is predestined or simply a person has a power of FREE CHOICES that unconstrained by external circumstances such as fate or divine will. It's a long story if I were to expound the origin of how human suffering started right from Adam and Eve made a wrong choice by taking the forbidden fruit. Adam and Eve were told not to eat the apple. When they committed sin, they greatest blame game in the universe begun. It was the serpent which deceived Eve and it was Eve who gave the apple to Adam. It was God's design fault that incorporated the Free Will feature in mankind............

In the book of the millionaire next door, they asked 3 questions to determine whether you are qualified to start the journey to become millionaire

1. Were your parent frugal?
2. Are you frugal?
3. Are your spouse even more frugal than you?

What is the point of the 3 questions? These are  no brainer questions, 3 yes to 3 questions surely qualify a person to have a better chance to accumulate wealth but was parent and spouse frugality within your control? I mean do you decide who are your parents or who you want to marry someone (or do not want to marry someone) based on frugality? Their argument is people tend to copy their parents behavior. If they have been nurtured in a consumption-based family, it is very difficult for them to break those habits. If their spouse is social conscious, they may ended up with a big fight if he or she decide to buy a used Kancil.

We can be bombarded with endless statistics that frugality is the cornerstone of wealth building. Frugality simply living below a person means. It is a choice. C-H-O-I-C-E. Making choices in life will never be easy. The conditions in making choices come in a package involving many trade-off. Those decisions are very hard and can never be made in isolation or vacuum.  Many believe in fate. It's a fate that they are born in a family(rich or poor). It's a fate they married or dated a person. True, but changing the outcome largely depending on each CHOICE we make. Our state of life is a result of a series of CHOICES we made over time. A person may be born in consumption-based family, they do have a choice to change course.

What about marriage? When a couple is dating, they should know whether the person that they want to spend the rest of their life is compatible with many of their values, including money management philosophy. Instability in marriage can throw a spanner in the works of wealth building. This again it's a choice. If a person is a compulsive saver dating a compulsive spender, they should know there will be many differences to be resolved. Some may be lucky, in the power of love, a person may change. But changing a person can difficult and require many sacrifices. Unresolved differences can lead to serious marriage problem. If they do run into a divorce, the divorce settlement and financial burden of being a single parent(if they have kids) can be painful.

.........to be continued..........