Question: How do you know if a share price is too high? Are PE ratios a guide, what about future earning, sales growth, debt/ equity ratio etc. Is there something else that is a helpful guide to determine if the stock is a hold or sell or buy?
Answer (By Paul Rickard): There is no right or wrong answer. More common measures around pricing include Price/Earnings (PE) and Price/Book (PB) ratios.
In terms of whether a stock can justify a high PE or PB, you would also consider sales or revenue growth, profit or EPS growth, return on equity, and in particular, how these compare to their competitors. As it is a global market for capital, these comparisons will also consider companies operating in different market places.
Question 2: I am setting up my SMSF shortly. I could simply take all my rollover and immediately invest in the portfolio strategy (across asset allocations, combo of ETF, funds, cash). The other thought is to hold a lot more in cash and then progressively invest in the strategy over the next 12 months. The latter would (presumably) give me better choice to invest at the “right” time. I guess the old advice of “time in the market is better than trying to time the market” is still relevant though. However very interested to hear about the right timing strategy to transfer into an SMSF.
Answer 2 (By Paul Rickard): As you would know from reading Peter’s regular column, our view is that the Australian share market can get up towards 6000 by the end of the year, and that the property market probably has another 12 to 18 months in it.
While offshore markets (particularly the US) look fully priced, if interest rates stay at or near 0%, it is hard to see too much of a downward correction.
On that basis, we would probably suggest that you invest earlier rather than later.
That said, we don’t really see our skill set as “market timers”, and have found that the adage ‘time in the market’ stands up pretty well.
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.
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