In GMO's third quarter letter, Ben Inker used “Breaking News! U.S. Equity Market Overvalued!” as the title. In John Hussman’s commentary on Nov. 4, 2013, “Leash the Dogma,” he said he believed there is a largely unrecognized bubble in stock price. Wise man Howard Marks also pointed out that China’s equities are “tremendous bargains” while U.S. stocks are “fairly to fully valued”in Shanghai on Nov. 4, 2013. You can reach my last market valuation article for more details.
By contrast, Warren Buffett said on Nov. 19, 2013, ”I would say that they're in a zone of reasonableness. Five years ago, I wrote an article for The New York Times that said they were very cheap. And every now and then, you can see that that they're very overpriced or very underpriced. Most of the time, they're in an area where maybe they're a little high, a little low, and nobody really knows exactly. They're definitely not way overpriced. They're definitely not underpriced.”
So where are we in the market? It is really hard to tell. However, we can see from our top gurus’ recent portfolios and check their asset allocation to get some general ideas how gurus think of the market.
GuruFocus has tracked the asset allocation of some top gurus’ portfolios for years. Here we use five-year data to see how the asset allocation goes. We only consider stocks, bonds, cash and short-term investments (in short: cash in the following part) in gurus’ portfolios. We ignore the item called “other assets and liabilities, net” in the portfolio of Investments. That’s why sometimes the percentages of stocks, bonds and cash cannot be added up to 100%. All our data are from sec.gov except for Warren Buffett’s Berkshire Hathaway (BRK.A)(BRK.B). It’s from annual & interim reports on company’s own website.
The following charts are the recent five-year quarterly asset allocation for some of our top U.S. gurus. The most recent data is third quarter data (201303); however, some funds have not updated their third quarter portfolios yet, and therefore the most recent data for them are the second quarter data (201302). (Note: the left axis is for cash and bond, while the right axis is for stock.)
From the above charts, we can see Robert Rodriguez’s FPA Capital Fund and Steven Romick’s FPA Crescent Fund have the trend of increasing cash position and decreasing stock position since the last quarter of 2011. In Steven Romick’s FPA Crescent Fund Q3 Commentary, he mentioned, “To remain intellectually honest and clinically dispassionate, we have found ourselves with little alternative but to make some sales. The number of equity positions now number 46 as a result – 7 fewer than our 2012 peak.”
Yacktman Focused Fund, Yacktman Fund, and Brian Rogers’ T. Rowe Price Equity Income Fund have increased their cash position gradually since the fourth quarter of 2008. Meridian Contrarian Fund’s cash position increased by around 6% from the first quarter of 2008 to the second quarter of 2012, and then it started to decline to 3% of the portfolio at the second quarter of 2013. Up to the latest quarter, the cash position increased to 5.24% of the portfolio. Dodge & Cox’s Stock Fund and Robert Olstein’s Olstein All-Cap Value Fund have gradually increased their cash positions since 2011. The cash position of Bill Nygren’s Oakmark Fund is relatively stable at around 4% to 8% for the recent five years.
Warren Buffett’s Berkshire Hathaway has increased its stock position since the beginning of 2009, while its cash position has not changed a lot. Martin Whitman’s Third Avenue Value Fund has decreased its cash position by nearly 10% for the recent five years while the stock position has not changed much. Fairholme Fund, Vanguard Health Care Fund and Wintergreen Fund all have decreased their cash positions, and to the contrary, increased their stock positions since 2008.
The following charts are the recent five-year quarterly asset allocation for some of our top international gurus.
From the above charts, we can see both David Herro’s Oakmark International Fund and Oakmark International Small Cap Fund have added their cash position since 2008. They reached top at the fourth quarter of 2010 and then started to decline. Now they have the trend to go up again. Charles De Vaulx’s IVA Worldwide Fund and IVA International Fund have gradually increased their cash positions by nearly 20% since the first quarter of 2011. The stock positions have increased from 2008 and reached the stable top level since 2010 to the beginning of 2012, and then they have started to decline by around 15% till now. The cash positions of Causeway International Value Fund, Wasatch International Growth Fund and Invesco European Growth Fund have shaken upward since the fourth quarter of 2008. MS Global Franchise Fund’s stock position is relatively stable. Its cash position is relatively stable too except for the year 2010. The cash positions for Hennessy Japan Small Cap Fund and Hennessy Japan Fund fluctuated in a wide range while the stock positions have been in a stabilize zone for the recent five years. T. Rowe Price Japan Fund has increased its stock position by nearly 10% together with its cash position which has shaken upward a little.
In all, some of the gurus have increased their cash position for recent years. It might be the sign that they think the market is high. Yet we should continually track the asset allocation of those top gurus and get a better idea later.
Keeping an eye on the overall market valuation and knowing where are we with market valuations will help us to find the good bargain in the market and be cautious of the risks. To serve this purpose, GuruFocus developed the following pages which help us get a general idea of what returns can we expect from the stock market.
1. Where Are We with Market Valuations?
2. Shiller P/E – A Better Measurement of Market Valuation
You can also reach the global valuation page by clicking Global Stock Market Valuations and Expected Future Returns. Recently, GuruFocus developed the sector Shiller P/E page which enables investors to see which sectors are more undervalued than others.
At the first week of each month, I will also write a summary article of the market valuations of last month. You can see the latest three months’ articles by clicking October, September, August.
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