March 24, 2013 Comments

My article on the valuation of the S&P 500 is updated and now suggests that as a point estimate the S&P 500 is about 12% over-valued. Basically the as reported earnings on the S&P 500 have remained stable over the past six months (since the last update) while the index has risen significantly. Although the particular stocks that I hold seem to offer good value this analysis may cause me to consider taking some profits and reduce my equity exposure somewhat.

I have added eBay back to the list of stocks in the table above. It is rated Weak Sell at $53.27. The company has many strengths. It is expensive but possibly the growth will take care of that. I am troubled by its excessive executive compensation and by an irrational insistence that stock options are not real expenses.

I had last rated this only a Weak Buy/ Hold at the start of 2012 at $30.33. So it seems I missed an opportunity to invest in a winning stock in 2012. That really does not bother me at all. I made excellent returns in other stocks in 2012. And even though my return would have been better had I invested in eBay, I don’t regret it. If I have developed a method of stock investing that works well on average that is all I need. Investors who would insist on never missing out on any stock that moves up strongly are simply being unrealistic and really showing a lack of knowledge and/or an immaturity.

Some subscribers may wonder why I would return a stock to the list that is rated Weak Sell. The main reason is that I did not know what rating it would have until AFTER I completed my analysis these past two days. The alternative of only adding stocks that are Buys would cause me to bias my ratings toward Buy. Also some of you may read the report I have compiled and conclude that you would in fact like to buy based on the strong growth and notwithstanding a high valuation and the executive pay.