Where to put your money

Today I was asked which asset class would I put money in?

My answer was equities and commodities. I forgot to also mention the U.S. Dollar.

This broad answer is predicated on valuation and selected commodities and currencies which are Oversold.

In other words, insist on a bargain or buy ‘straw hats in winter’.

Many other assets are either expensive or clearly in the speculative realm, thus relying on a greater fool to pay a higher price than they did….

for example, buying a house in Australia will likely mean paying a P/E of 46….

and be careful with some commodities, especially those who have doubled or tripled in price over the past 10 months.may pose a short term trap.

Regarding equities, the S&P 500 seems fairly valued and not offensively priced with a P/E of 19 (when you exclude the 6 FAANGM stocks) as displayed in the image below.

This puts it on an earnings yield of 5.3%, which 3.3 times more than the 1.58% yield on the U.S. 10 Year Government Bond.

It’s P/E Ratio is lower than pre-March 2020 and surprising to many, the S&P 500’s earnings are now 11% higher since pre-pandemic times.

Companies have been booking some handsome profits.

But my view is that index hugging is less attractive that stock-picking.

After all, many stocks have P/E’s of 11.

Alcoa is one of them.

June 7, 2021

by Rob Zdravevski

rob@karriasset.com.au