S&P 500 “Intrinsic Value Index” Soars To $1903

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S&P 500 “Intrinsic Value Index” Soars To $1903

S&P 500 (.INX) “Intrinsic Value Index” Soars To $1903

The Dallas Fed reported its 12mo Trimmed Mean PCE core inflation measure at 1.3%. Inflation remains relatively low-see their table below.

screenshot 28 624x371 S&P Intrinsic Value Rises

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For the S&P 500 (.INX) Intrinsic Value Index, this means that it advances to $1,903. The SP500 closed out October 2013 at $1,756.54. The market continues to remain in the range with appeal for deep Value Investors such as Warren Buffett-see the chart below.

screenshot 27 535x420 S&P 500 (.INX) Intrinsic Value Rises

Inflation remains contained, Real GDP is improving, Retail Sales are rising and more individuals are finding work each month. This makes for a very heady brew for economic expansion and higher stock prices. For bond holders the opposite is true as rates rise in response to investors gradually shifting capital from Fixed Income into Equity investments as investor confidence improves. Even today’s markets reflect a significant improvement in market psychology as can be seen by recent IPO activity. This is a good time to raise capital for ‘story’ stocks and they trade at Internet Bubble levels.

In general I advise investors avoid the IPO market as real value is available in more traditional names. With the Facebook and ‘Internet like’ IPOs one does not have valuation as a supporting parameter because these early stage companies do not have current earnings or enough revenue to justify current prices vs. the bulk of existing companies. These high fliers are priced on distant expectations which may never be fulfilled. Too much risk for serious investors!!

Investing is not about catching trading opportunities. If one wants to play the game a little one can always go to a discount trading firm with a little capital as long as one knows that what one is really doing is trying to catch changes in market psychology over relatively short periods of time. Trading is not how serious capital grows to become more serious capital! Serious capital requires understanding businesses and understanding how the markets price them in both good and bad markets. Then one buys for the period when businesses are cheap and hold till they become excessively priced. In my experience the time period between buying and selling a seriously considered investment is 5yrs-10yrs if it all works according to original expectations.

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Todd Sullivan is a Massachusetts-based value investor and a General Partner in Rand Strategic Partners. He looks for investments he believes are selling for a discount to their intrinsic value given their current situation and future prospects. He holds them until that value is realized or the fundamentals change in a way that no longer support his thesis. His blog features his various ideas and commentary and he updates readers on their progress in a timely fashion. His commentary has been seen in the online versions of the Wall St. Journal, New York Times, CNN Money, Business Week, Crain’s NY, Kiplingers and other publications. He has also appeared on Fox Business News & Fox News and is a RealMoney.com contributor. His commentary on Starbucks during 2008 was recently quoted by its Founder Howard Schultz in his recent book “Onward”. In 2011 he was asked to present an investment idea at Bill Ackman’s “Harbor Investment Conference”.

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