Stocks Are Currently Not Available at Discounted Prices

Every time the stock market experiences a notable dip, a series of headlines proclaiming stocks to be on sale usually ensues.

Some investors liken investing to retail “door-buster” sales – “Buy now; our prices are unimaginably low!”.

However, we really have no idea where stock prices will head from here. Even after recent market declines of roughly 10%, the cyclically adjusted price-earnings (CAPE, or Shiller PE ratio) still sits at an astounding 31.69; almost double that of both historical mean (16.83) and median (16.15) valuations.

As far as stock valuation goes, aside from 1929’s Black Tuesday (which started the Great Depression) and 1999’s Dotcom bubble (when valuation peaked), we remain just under our highest point ever reached in history. Perhaps this is our new normal or perhaps things will revert.

Are stocks on sale? Everything depends. Yes, stocks may be cheaper now than two weeks ago; but they remain more costly than in three months, one year, five years and historically in all but two instances – so we won’t really know until 20, 30 or 50 years from now whether this dip was an appropriate opportunity.

Back to our door-buster example. Imagine I’m selling you a unique mattress at retail, and have steadily raised prices above inflation for eight years while then offering discounts before holidays; am I providing you with a good sale? That depends entirely on my future pricing plans – something no one can predict with any certainty.