Perhaps the best thing you can do, advises portfolio manager David Tice of the Prudent Bear Fund, is invest with your eyes wide open. If everyone is telling you a stock is "better than sliced bread, you better question it." All the good news is already cooked into the stock's already high price. Or to put it another way, imagine sitting at a poker game with a CEO of company XYZ, a Wall Street analyst with a buy rating on XYZ, and a portfolio manager with XYZ in his fund. "If you are wondering who the sucker is," Tice says, "it's probably you."
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Where's the money?
Here's how much $10,000, invested five years ago was worth on June 30, 2002:
Time to buy? `Fed Model' says yes
Market Mood
Market-timing is no easy feat, but a stock valuation model closely watched by the Fed might help. As outlined by Chairman Alan Greenspan in a 1997 speech, the "Fed Model" divides projected earnings per share for the S&P 500 by the current yield on the 10-year U.S. Treasury note. If the resulting number--multiplied by 100--is higher than the current S&P 500 index, the market may be undervalued; if it's lower, the reverse is true. While the formula has been prophetic, it's far from foolproof--especially when, as now, interest rates are very low. Nevertheless, the formula is sending a clear "buy" message.
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