Some thoughts on markets and valuations

Some thoughts on markets and valuations

To paraphrase Howard Marks, writing a few years ago.

If the stocks you hold are too popular, they are probably too risky as well. 

That includes what might be deemed high quality stocks.

There may be parallels with the Nifty Fifty of the late 1960s and their demise. They suffered from extrapolation. Why not the same today?

Fundamental risk is different from investment risk. The latter is about price and valuation. A great fundamental story/company may be priced for a return in 100 years!

The more the market goes up, the more the return is subtracted from the future. 

Momentum investing works until it ends!

Don't ever assume the market is efficient. As Ben Graham opined, the market is a sentiment barometer. And there's been plenty of risk-on in recent years and flashing green share prices.

Valuations look high today. But what about value?

One of the challenges today is valuation risk. In efforts to reduce risk, you may not only lose out on future gains but may increase valuation risk by paying up too much for defensive quality.