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.