Greater Fool – Authored by Garth Turner – The Troubled Future of Real Estate

The chorus

  By Guest Blogger Doug Rowat

Anyone brave enough to scroll down to the blog’s Greek chorus will immediately encounter the familiar siren calls regarding what’ll bring the market to its knees.

T2 usually ranks high on the list. Central bank (over)stimulus is up there too. Virus mania has a permanent place of honour. But right near the top is the chorus’s other favourite bete noire: valuation. And the advice lately? Run for your lives, equities are expensive.

Indeed, in the simplest terms, markets are expensive. The trailing 12-month P/E of the S&P 500 sits at 24x, well above its historical 85-year average of about 16x. However, standalone P/E metrics are insufficient. Valuation must be viewed more broadly. When someone, particularly an anonymous know-it-all in the comment section, advises to sell everything because markets are “overpriced” consider the following:

So, are markets expensive? Only if one takes a narrow focus. Valuation requires nuanced analysis meaning it’s best to ditch the hysterical and oversimplified conclusions that I’m sure are awaiting me in the comment section (on Christmas Day no less).

But today’s not a day to dwell on market valuation fears.

Let’s sip eggnog instead. Heavy on the rum.

Doug Rowat, FCSI® is Portfolio Manager with Turner Investments and Senior Vice President, Private Client Group, Raymond James Ltd.