Sensible Investing

The situation on the stock market today reminds me somewhat of 1999-2000, in reverse.  Back then, everybody knew that stocks were overvalued, but many people were coming up with very convincing arguments that in the “new economy” triple-digit PE ratios are sustainable and justifiable.  Remember that book entitled “Dow 36,000″?  It was claimed that it was different that time.  As we all learned, it wasn’t.

Now, everybody knows that stocks are undervalued. I am seeing a number of articles that explain that these low valuations are here to stay.  The reasons given are deleveraging, higher taxes, and more government regulation of securities markets. The arguments are compelling, but so were those of “Dow 36,000″ author.  Will it be different this time? I don’t think so. During the last century this market endured the Great Depression, two world wars, cold war, and oil embargo, and still managed to rise nearly 200-fold. I don’t have the exact timeframe, but the valuations will revert to their historical norms.