November 19, 2013 Comments

On Tuesday the S&P 500 was down 0.2% and Toronto was down 0.1%.

Among our stock picks there was not much excitement although Bank of America was up 1.8%.

I sold the remainder of my Stantec shares today. I was hesitant to do so because it was in a taxable account. And I am not sure I should have sold. I’d like to buy back in in future if the P/E ratio were quite a bit lower.

In 2007 and the first half of 2008 I watched P/E ratios rise higher and higher. To some extent I responded by using higher assumed P/E ratios in my valuation formula. Essentially what that did was more or less justify the higher stock prices that we saw in 2007 and the first half of 2008. As I have mentioned before , it is always possible to torture the numbers until they confess that any particular stock price is a bargain. I did not get as carried away with that as many others but to some extent I engaged in pushing up my assumption of a fair P/E ratio. I will try to avoid that this time. If markets continue to go higher it should lead me to selling out of or trimming some positions as their P/Es (and price in relation to value in general) seem too high (like Stantec).

I am not suggesting that I am rushing for the exits. In fact some stocks still have low P/E ratios (and also that is not the only thing to consider) so I would not be reducing all positions. In general I am seeing fewer bargains now and that is to be expected as markets have risen.