As regular readers know, I have a cautious view of the stock market these days.
My concerns are mostly valuation-based: Many long-term valuation measures, including “Warren Buffett’s favourite measure,” suggest that stocks are very expensive.
Importantly, this doesn’t mean the market is about to crash — valuation is largely useless as a market-timing tool — but it does mean (in my view) that stocks are likely to provide lousy returns over the next 7-10 years.
It also means that investors should be psychologically prepared for a market crash, because a crash from this level would not be surprising.
Well, one investor I respect, Josh Brown, winces every time I use the word “crash.”
He worries that my using the word “crash” will cause nervous investors to freak out and sell their stocks when it would not be wise for them to do so.
Josh, the CEO of Ritholtz Wealth Management, also has a more optimistic view of corporate profits and stock prices than I do, though he’s hardly a towel-waving bull.
I have assured Josh that I do not think any investors should “freak out and sell their stocks,” at least not if they have a time horizon long enough to absorb significant but hopefully temporary losses (if they don’t, they shouldn’t be in the stock market to begin with). And I have pointed out that, if the market does crash, I would regret not having expressed my concerns about that crash as loudly and clearly as I could have before the crash.
(I own stocks, by the way. And, for many reasons, including that market-timing is a terrible investment strategy, I’m not selling them. If stocks tank, I’ll be going down with them and Josh and Josh’s clients.)
Anyway, Josh and I debated some of our respective views on Yahoo! DailyTicker this morning. And we even found one thing that we wholeheartedly agree on:
Corporate America’s current obsession with “profit” is crippling the U.S. economy and hurting the country. It’s time companies stopped worrying so much about “ROI” and “maximizing quarterly earnings” and started investing in their future, their equipment, their people, and lower prices.