The investor’s portfolio of common stocks will represent a small cross-section of that immense and formidable institution known as the stock market. Prudence suggests that he have an adequate idea of stock-market history, in terms particularly of the major fluctuations in its price level and of the varying relationships between stock prices as a whole and their earnings and dividends. With this background he may be in a position to form some worthwhile judgment of the attractiveness or dangers of the level of the market as it presents itself at different times.And some charts showing today's valuations (via Doug Short):
"The Buffett Valuation Indicator"
From last month, but the current numbers would be even slightly higher.
And related to the above, here are a couple of Howard Marks remarks on the market from 2012 and then in his recent memo:
Howard Marks, September 2012:
The outlook certainly isn't so propitious (and assets aren't so cheap) as to call for investing aggressively. But at the same time, market conditions tell me this isn't a time for hiding under the bed. 'Move forward, but with caution' -- that's my mantra today. The environment is uncertain, but we shouldn't find that paralyzing.
Howard Marks, September 2014:
It's the job of investors to strike a proper balance between offense and defense, and between worrying about losing money and worrying about missing opportunity. Today I feel it's important to pay more attention to loss prevention than to the pursuit of gain. For the last three years Oaktree's mantra has been "move forward, but with caution." At this time, in reiterating that mantra, I would increase the emphasis on those last three words: "but with caution."
Economic and company fundamentals in the U.S. are fine today, and asset prices – while full – don't seem to be at bubble levels. But when undemanding capital markets and a low level of risk aversion combine to encourage investors to engage in risky practices, something usually goes wrong eventually. Although I have no idea what could make the day of reckoning come sooner rather than later, I don't think it's too early to take today's carefree market conditions into consideration. What I do know is that those conditions are creating a degree of risk for which there is no commensurate risk premium. We have to behave accordingly.