Anecdotal Evidence of a Stock Market Fairly Valued

My regular readers might have noticed that I have not posted about the financial markets much in the last 10 days or so.  My goal is to interpret the mass of news flow out there and deliver to you prescient analysis and commentary on the important news story of the day.  That story is something that I feel affects investors and is worth trying to understand.  Yet, there has been not much to write about.

There have been no big earnings misses, other than Research In Motion (RIMM) earnings miss and big sell off, and I blogged about that.  Geopolitical events, even including the death of Osama bin Laden just don’t mean that much.  Meanwhile the stock market continues to go sideways.  So what does this all mean?  As you have probably guessed from the title of the post this is anecdotal evidence of a stock market that is fairly valued.

There are two things to focus on.

First, is the stock market responding to news appropriately?  That is: are there wild gyrations up or down on news?  No.  That usually means that the news flow is not providing anything untoward or unexpected.  That means that stock prices already reflect the type of news that is coursing through our attention spans.

Second, is there a general sense and feeling of apathy?  That is: are investors nonplussed by things like earnings reports?  Yes.

To me, this is a powerful sign that the stock market is currently fairly valued.  Not coincidentally, I said earlier this year for the first time in my career that I felt that the stock market was fairly valued and that stock investors would do well to invest in a U.S. index mutual fund <gasp!>.  Trust me, I have been published as an investor and writer denigrating index funds – so for me, this is shocking.

What to do?  Start looking for asset classes that might be undervalued.  All investing boils down to four simple words: buy low, sell high.  What is low right now?  That’s right, real estate is very cheap.  What isn’t low right now?  That’s right, commodities, including oil, silver and gold – which is very overvalued.

Might real estate prices go lower?  Yes, and they probably will.  But to be able to buy real estate here, you are likely buying at, or very near, the low.

I will continue to apprise you of anything that I feel is significant in the news flow.  But right now, what is significant is that there is nothing of significance.

Jason