Stock market investors who gleam with visions of selling their stocks at ever higher prices should cast their eyes at a chart of the S&P 500 over the last 20 years and get out now — or they will look at that same chart in the future and ask themselves “What was I thinking?”
So warns Hussman Funds portfolio manager John Hussman in his most recent letter to shareholders, his latest in a years-long series of warnings about the risk of stock market valuations, which he now characterizes in perhaps his most emphatic terms yet:
“Prospective returns have reached zero. The value you seek from selling in the future is already on the table today. The future is now.”
The portfolio manager known for his bearish views but also for some prescient market calls writes that some of the “saddest notes” he received in the 2000-2002 and 2007-2009 bear markets came from investors lamenting “I wish I had listened.”
The losses of those bear markets wiped out the total S&P 500 gains all the way back to May 1996 in the former case and even further, to June 1995, in the more recent crash.
To convey a bit of how that feels, Hussman quotes a 2001 warning he issued conservatively estimating price targets for Cisco at $18 ¾ (when its 52-week high was $82), Sun Microsystems at $4 ½ (when its 52-week high was $64), EMC at $10 (when its 52-week high was $105) and Oracle at $6 (when its 52-week high was $46).
With the ensuing crash, three of those stocks fell 50% below these price targets, and one of them hovered near the target price.
But the overvaluation of that period — and here’s the core of Hussman’s current warning — pales in comparison to current market conditions.