After a turbulent 2020, I'm positive about 2021's outlook for stocks and real estate. We should see significant GDP growth (3-5%), a strong rebound in corporate earnings (20%+), and a massive unleashing of spending (saving rate back down to ~6%). As a result, there's a high probability we will see new record highs in many major asset classes.
What's concerning me is that the majority of us probably think 2021 is going to be better than 2020. Therefore, it may be hard to find the incremental buyer.
However, the great thing about asset bubbles is that they tend to inflate far past reasonable fundamentals. Therefore, even if you know things are ludicrously expensive, it's worth hanging on for as long as possible.
2021 may be one of the greatest times to get rich. Let me share my 2021 outlook for stocks, real estate, and the economy. My beliefs will shape how I invest my money and spend my time.
Financial Samurai 2021 Outlook
I'm going to focus on stocks, bonds, and real estate because that's where most of my assets are (~70%). I'm assuming these asset classes make up the majority of your investments as well. You are free to speculate all you want in Bitcoin and other asset classes. However, my focus is on building wealth with the majority of my assets.
10-year Bond Yield
Everything starts with the risk-free rate of return. Once you've made a proper forecast of the 10-year bond yield, you can then proceed to make your appropriate investments.
If you've been reading Financial Samurai since 2009, you know that I've consistently believed the 10-year bond yield would stay low or keep going lower. America has contained inflation. We've learned from many previous economic cycles. We have globalization. Technology makes information flow instantly. Federal Reserves are coordinated.
I believe the 10-year bond yield will increase in 2021 back up to 1.25% by 2H2021. In other words, the yield curve will steepen and banks will be one of the better investments.
To put things in perspective, 1.25% on the 10-year is still 70% lower than where it was in 2018. However, as of March 12, 2021, the 10-year bond yield is now at 1.5%. Therefore, my 1.25% average for the year is looking tenuous.
I don't believe the 10-year bond yield will surpass 2%. Once we take a step-function down in rates, it's hard to move back up due to expectations. I also believe the aggregate bond market will have a flat year.
With interest rates inching up, the aggregate bond market index will likely have a flat year. I envision a scenario where bond yields make up for the decline in principal values.
Everybody who is considering refinancing should refinance now while rates are still near all-time lows. Check out Credible for some real, no-obligation quotes. Multiple qualified lenders will compete for your business.
Now that I've established a view on the risk-free rate of return, let's move onto my S&P 500 and real estate outlook.
S&P 500 Outlook 2021
The first part of making an S&P 500 forecast is making a decision on whether the index will go up or down. The second part is estimating the magnitude of growth or decline through GDP and earnings forecasts.
My S&P 500 bottom call in 2020 was spot on. However, my estimate on the amount of the recovery was not. I didn't expect us to rebound as much. As a result, I did not buy enough on the way up.
For 2021, I expect the S&P 500 to increase by 8% in 2021 for a year-end target price of 4,088. If the S&P 500 can generate an EPS of $165, that puts valuation at 25X. If the S&P 500 can generate a $170 EPS, then its P/E drops to a more reasonable 24X for 2021.
A $165 – $170 EPS is equivalent to a 25% – 30% increase over 2020 estimated earnings (still waiting for 4Q2020). Therefore, from a price-to-earnings-growth metric, a 25X multiple is reasonable.
Consensus S&P 500 EPS estimates are for $190 in 2022. But the S&P 500 will only start trading on 2022 earnings beginning in 3Q2021.
2021 Valuations Are Expensive
To put a 25X earnings multiple in perspective, check out the chart below. 25X puts the S&P 500 at a 20-year high. And achieving a 25X multiple is predicated on experiencing a 25% earnings rebound in 2021. If earnings don't come through, the S&P 500 will most likely be flat or decline.
However, it's worth noting that 90% of the S&P 500's market capitalization is now based on intangible assets such as R&D, IP, and software. Therefore, one could argue there should be a natural rise in valuations for companies that have higher operating profit margins and more defensible income streams.
Partly based on expensive valuations, investors should expect corrections of 5-10%, multiple times in 2021. Therefore, you may want to wait for these corrections to put new cash to work.
Wall Street S&P 500 Forecasts 2021
Wall Street is very bullish on the S&P 500. A couple of the biggest bulls are Goldman Sachs and JP Morgan, who have year-end 2021 S&P 500 target prices of 4,300 and 4,400, respectively. JP Morgan has a 2021 EPS estimate of $178 for a 36% rebound in earnings.
I sincerely wish Goldman and JP Morgan are correct. Their analysts and strategists surely make enough money.
However, I believe their forecasts are too high. Like children eagerly anticipating receiving every present on their wish list before Christmas, I fear they will be disappointed with only one or two presents.
We have three risk factors to corporate earnings:
- Virus mutations that lower current efficacy rates of existing vaccines.
- Much slower-than-expected vaccine rollout, delaying 2021's expected economic recovery into 2022.
- The Senate going blue, which breaks a lot of gridlock. More regulation and higher taxes should slow growth at the margin. Then again, we could see even stimulus package going forward.
Forecasting a 30% – 40% rebound in earnings growth to justify an S&P 500 level above 4,200 is too aggressive.
Money should flow into Consumer Discretionary, Financials, and Energy. These are the sectors that lagged the most because they also got hit the most.
I don't think tech investors should expect a similar type of outperformance as the economy rebounds. In fact, I think big tech has a 65% chance of underperforming. The NASDAQ is trading at 40X P/E, the highest since 2014. The index has essentially doubled in two years.
If there are any 1-2% dips, I will be buying the S&P 500. However, I'm not aggressively putting new money to work if the S&P 500 keeps marching higher. There are much better deals to be had in real estate.
Real Estate Outlook 2021
The median home price in America went up about 8% in 2020. That's a 40% gross return on a 20% down payment. This level of growth is unsustainable, especially since mortgage rates are unlikely to go down further.
Despite the strong gains, I believe residential real estate will continue to do well in 2021. I forecast a 5% YoY national median growth rate in 2021, closer to the levels we have seen between 2015 – 2017.
Meanwhile, commercial real estate will start catching up as the economy opens. There should be deals to be had in the hospitality and office space. You want to buy those properties from owners who are over-leveraged and can't hold on until the economy fully reopens.
Mortgage rates won't increase by more than 25 basis points on average e.g. 2.75% on a 30-year fixed to 3%. Investors will smartly shift some of their stock gains to real estate. There will be an increase in appetite for cash flowing rental properties given the value of income has gone way up.
Once you've had huge principal gains, you want to convert some of these gains into a steady income stream. If you follow this strategy of consistently converting some of your capital gains into income-producing assets, you will become a very wealthy person over time.
Where To Buy Real Estate
For 2021, strategically, I like buying real estate where there is the biggest difference in company share price performance and local real estate price performance.
For example, the NASDAQ closed up 42% in 2020. Therefore, you want to buy real estate in places like the San Francisco Bay Area, where many NASDAQ companies are located. The amount of wealth tens of thousands of employees have made in the Bay Area is absurd.
I feel much richer after a 40% 2020 equity performance, and I don't even work in tech. Many of these tech employees have seen far greater returns and will want to rationally diversify their investments.
I believe big-city real estate will make a nice comeback in 2H2021 and 2022. Therefore, you want to strategically buy before the comeback is really evident.
The herd always waits for a green light. In SF, I've witnessed the herd come back by 2003 after the 2000 dotcom crash and by 2012 after the 2008-2009 financial crisis. But this time, everything is recovering more quickly. If you are a renter, you should try and lock in a long-term lease now.
At the same time, I continue to believe in investing in the heartland of America. Not only is there a fanning out within cities to save on living costs. There is a fanning out across the country thanks to technology and the permanent acceptance of working from home. This trend is decades in the making as new great cities emerge across the country.
The easiest ways to invest in the heartland of America is with Fundrise or CrowdStreet. Fundrise has created diversified eREITs and eFunds for exposure. CrowdStreet focuses on individual real estate deals in 18-hour cities for accredited investors.
Both are the leading real estate crowdfunding platforms today. Both are free to sign up and explore. If you're curious, CrowdStreet has shared their commercial real estate outlook for 2021.
Your Goal For Real Estate Investing
In the latter half of 2021, there will likely be more discussion about inflation. Inflation chatter must pick up if the Fed stays accommodative and stocks and real estate continue to do well.
Therefore, you want to at least be neutral inflation by owning your primary residence. This way, you can at least ride the inflation wave while having a nice place to stay. Enjoying your appreciating asset is such a wonderful combo.
But in an inflationary environment, what you should really do is go long real estate by owning more than one property. This way, you can benefit from capital appreciation and rental appreciation. If you own only one property you can't monetize any appreciation unless you can splice the property out or rent out rooms.
Let me give you an anecdote about the potential future of rental properties. During my latest rental lease negotiation, I accepted less rent for hopefully better tenants. However, as part of giving my tenants a discount from my original asking price for the first year, they've agreed to a 4% increase in rent for the second year starting at the end of 2021.
2021 Should Be Profitable
Although most of us are bullish on stocks and real estate in 2021, I still think these two major asset classes will perform well. The Federal Reserve and the Federal Government are accommodative.
If something bad happens in 2021, we can count on Janet Yellen and Joe Biden to bail us out. There's no way they can't since they just got into power. Once you have power, you want to hold onto it at all costs. Of course, with valuations so high, we must expect 5-10% corrections throughout the year.
There is a massive amount of savings that is ready to be unleashed. Take a look at your own balance sheet. Ask your friends and colleagues whether they've got large cash buffers. Chances are high they do because the national savings rate has been elevated since March 2020. This money will go back into the economy.
You may not be able to benefit from the latest round of government stimulus due to income restrictions. However, you can benefit by investing in companies and cities that will be beneficiaries of the stimulus.
I believe there's a 75% chance 2021 will be a great year for stock and real estate investors. Just make sure you don't over-leverage yourself. After all, even if there's a 75% chance of making money, there's still a 25% chance of losing money.
Best Way To Track Your Investments
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Readers, what are your predictions for 2021? What are some big goals you have in mind? Do you believe 2021 will be a great year?
Disclaimer: As always, invest at your own risk. Don't invest in money you cannot afford to lose. Always discuss your investment thesis with others. Run the numbers over and over again. There are no guarantees in investing.
Finally, if you are paying someone to invest your money, don't forget to ask them how they did in 2020 and what their forecasts are for 2021. Have them review your 2020 performance and their 2021 game plan for you. You have the right to an explanation.
Related: 1H 2021 Financial Samurai Review
Here are the 2024 S&P 500 target price forecasts by Wall Street. It's off to record highs if their forecasts come true.
Hi Sam,
I’ve been following FS and started listening to your podcast, it’s refreshing to listen and read your perspective on FIRE Or should I say DIRE . Anyway, as the SME in Bay Area market, is you are to start over, make fairly decent salary and raising a family here in the valley, where would you buy a house? Have you considered Sam Ramon CA? Does a $1.4M house make sense? To be honest I’m talking to a friend who wants to jump the gun on buying since he makes good money but I’m skeptic on the price having my living simple mindset, be out of debt and pay off a $600K house in a suburb. Will appreciate your thoughts? Also how about writing a book to achieve FAT FIRE or DIRE whatever you call it. I’ll buy a few copies. Thanks again for what you do. Cheers
Great read and comforting. I’m also bullish on RE in the areas you mentioned. We are closing on our 11th rental. Started purchasing in 2020. I noticed a .5%-1% decline in COC return in the same areas we purchased last year due to the increase in sales price; only been a few months, but the RE market is smokin. Still not stopping us from purchasing a few more to have a comfortable cashflow.
Agree with a previous poster, folks in the FIRE community don’t discuss RE often enough, the focus on 25x expenses can take a long time to achieve. Get a good property manager and expect stuff will come up, knowing it doesn’t have to take up much of your time, and RE is a great addition to your portfolio. By purchasing rentals we fast tracked FIRE by 4-6yrs. Now can take W2 salary and invest it all in stocks/bonds to create a more balanced portfolio.
I came to know about your website after reading the CNBC article “Millionaire who bought a home at 26 regrets paying off his mortgage early: ‘This is the biggest downside no one tells you’”. Thanks to CNBC for making me know about you.
As of today, I feel those who wanted to take the Covid19 Vaccine will get it by the beginning of the second quarter. That is the time govt spends a lot of money to motivate at least 30% of the population who do not want to take vaccines. These people who are not willing to take the vaccine are not a threat to reopening the economy as they take their own preventive steps. The reason I am sharing this is, the economy will be normal by the end of the second quarter. Even with new varients, people who are out will follow the safety measures or do not care like many people today.
Based on this I do think investing in any stock is well known and the stock which is still 50% below 2020 high, like Movie Theaters, Mortgage Finance companies, Airlines, Cruise companies will go up substantially.
Please offer your comment on my prediction if possible.
Sam,
Since a month or two, I am hearing more and more tech companies are embracing partial remote work ‘permanently’ esp mid-size, small-size companies and few big too. I’ve seen large exodus in my direct social circle, acquaintances and in my neighborhood towards much affordable areas. Many flocked to the outskirts of the bay area to which once people used to fear of severe devaluation in downturns and horrible communte. Some of course moved out of state – Austin primarily. I’ve seen the valuations of the houses (brand new) in the outskirts shot-up crazy up to 40% last year. Rents falling by 20% in my neighborhood (Cupertino) is an evidence that the exodus is not limited to my social circle. Given the location flexibility to tech folks who are the prime drivers of the housing market in bay area, excluding few fresh millionaires, I am wondering why do you think potential buyers would prefer to buy ridiculously expensive areas in bay area anymore?
The same drivers of Bay Areas RE in 2010-2012.
With the NASDAQ up 44% in 2020, companies like AirbnB going public at massive valuations, and tech continuing to roar, the amount of wealth here has skyrocketed faster than anywhere in the country.
Then you add demographics and low rates and pleasant weather year round (Austin and SA are at 15 degrees right now), SF Ba Area real estate is a bargain now.
The smart money I know are buying up as many properties as possible before herd immunity.
With such great gains why not lock in profits and purchase options with a fraction of your gain.
Market corrects %10 and you make $$ on put options protecting your gains.
OR
Cash out so you have dry powder if we get a big correction. Buy calls so you so you don’t miss out on any big upside.
OR
Cash out put the $$ aside for any future opportunity… Take a portion of you $$$ and employ both the above strategies.
I see so many people giddy about the big gains they make or despondent about big losses. why not employ a few option strategieds for insurance and sleep alot better….
Sure. I always convert some gains into real assets to try and make the gains last for longer and actually enjoy my gains.
See: https://www.financialsamurai.com/the-best-way-to-get-rich-turn-funny-money-into-real-assets/
Sam,
Since you are bullish on real estate this year, what do you think about just investing in VNQ?
I actually bought some VNQ recently for my kids custodial investment accounts. It has lagged the S&P 500.
Hey Sam and readers, it’s time for some optimism! We just listed our 3 bed / 2.5 bath condo in the Cathedral Hill area of San Francisco last Thursday. Five days later, closed on a lease for higher than the asking rent price. We had over 20 inquiries and 5 showings in the first two days, with a backlog of 9 showings that were going to be scheduled. It’s a nice condo at ~1600 sq ft, but it’s not fancy or new by any means. The tenants are all coming from outside of SF and they asked for an 18 month lease.
I’ve been optimistic for months now, in spite of the negative media about the SF exodus. This experience renting out our place feels like we are coming out of the long 2020 tunnel.
Im with you, Sam!
Great to hear! So new folks come to SF for opportunity huh? That’s good to hear.
How much more did you get than expected and versus pre-pandemic?
Asked for $4300. They offered $4400. I asked for $4500 and they took it right away. Other applicants offered to compete too.
I think pre-pandemic, we would have gotten $5000.
Btw, we are going through the public vs. private school process too in SF. I really appreciate your posts. We’re also looking at Mandarin immersion schools.
I am much more concerned about inflation as a direct result of the dollar falling more than 10 percent against the Yuan and the Euro as well as many others. What are your thoughts about how this will affect the economy?
Unless you’re focused on buying foreign goods and investing in foreign assets, I wouldn’t be concerned. Countries like China have exported DEFLATION given their lower labor costs.
Perhaps in 2022, there will be more talks of inflation if asset prices continue to rocket higher.
I live in Mexico and have watched the dollar fall against the peso by nearly 10 percent since the end of September. I am in the market for house and in dollar terms my costs are now significantly higher. Although the market is very soft sellers are just holding on rather than reducing prices. I am tempted to wait but given the cost of rent, it still seems to be a better option to buy with cash that is not earning any interest in a US bank. Mortgage rates in Mexico are still above 10 percent so unless one wants to speculate on the value of the peso, it is much better to simply pay in cash.
Great post Sam. We’re selling in the DC area in a few months – also selling our vacation cabin in western Virginia (2 hours from DC) and moving back to Florida. I’m torn on renting or buying when we get to Florida – the market is out of control (rising prices) and I am not as bullish on RE as you are. Once the stimulus money stops and the protections from foreclosures and evictions ends, we’re going to see a lot of people out of their primary homes. The current mortgage delinquency rate is at a 21 year high for mortgage payments 120+ days overdue.
Anyhow, we’re not sure if we should buy as soon as we move or rent and sit on the money for a year or so to see if there’s a correction in the housing market. There’s no way this trend can continue….or is there?
Could be! Or, protections from foreclosures and evictions end only when the labor market aggressively rebounds and the good times are truly back, thereby dampening a surge in delinquency rates.
As an investor, it’s good to have dry powder to take advantage of any short-sales/foreclosures.
I live in Florida and can tell you first hand the real estate market is hot. However I do not see an imenent downturn. The state has largely stayed open during the pandemic very few businesses I can see have closed. I own many rental properties and all of my tenants seemed to keep jobs. I have been shopping the luxury market hoping to get a pullback with COVID but instead prices are up at least 20% since the beginning of 2020. I am still hopeful something will happen to bring more inventory onto the market but it likely may continue for some time.
And I regret selling my house in Florida in 2016, when my job forced me to move to Pennsylvania. But it would have been hard to manage the house for Pennsylvania. And I made good money on that house, with no closing costs when I bought it is a short sale or sold it 2 years later.
But did you reinvest the proceeds? If so, hopefully you made money there too.
For the first year I did not because I thought the market was going to crash. Then I slowly put some into stocks, summoned to index funds that have done very well. Others into individual stocks, some of which have done well, some of which have not. And then I put some of it into Worthy bonds, particularly last summer when the market was going down, and I should have put it into stocks. But at least Worthy pays a straight 5%. My net worth today is about 3x higher than in 2016, which is good.
I’m struggling today with what to do with all the cash I have, other than to stop worrying about little things on money (getting best grocery sale, best price for airline ticket, etc), particularly since Worthy Bonds is not accepting new money right now.
You can’t beat a 3X return in just five years! Congrats!
Your situation reminds me of the post I wrote regarding real estate being less risky than Stocks, which is ironically why the average person can make much more money through real estate and stocks.
Well, the 3X wasn’t all earnings. Just went back to Quicken. Some of that 3X was depositing earnings from the house I sold, after I had already bought my current house (carried 2 houses for a short time). And then about 1.3X are deposits into the stock market, based on income I’ve earned in my job. Quicken says 12.69% per year, though I’ve never understood how Quicken does that calculation.
For stocks, I’ve kept my regular, automatic investments as is. And I’ll watch for 1% – 2% dips to invest more. And then I’ve got formula I found last year on how much to invest on 10%, 20%, 30% dips, should those arise again (unlikely).
The other reality is that I would like to own in Florida, if it was rented out, I couldn’t stay there. And so I’d stay in one of the many good hotels I know there. Which I could do today. Except I don’t have time with 3 young kids, all of whom are going to in-person school and activities several days a week (which is very good).
Interesting take on 2021. My rentals have appreciated in a way that I could have never imagined in 2020. The NAR has named my area as one of several that are expected to continue the trend. That leaves me with a tough decision.
It would be hard to disagree with you that commercial properties are some low hanging fruit at present. It’s tough to pull money out of one well performing asset and push it into another one that I’m unfamiliar with.
One great thing about commercial rentals is nobody perceives that group of landlords as evil parasites. I have encountered a few who definitely feel that way about residential landlords. Definitely worth exploring.
Yes, it’s hard to sell assets to buy another. Therefore, I encourage readers to rebalance by growing the pie and allocating new capital to underperforming o new assets. Taxes are really painful, especially if the asset you sell continues to go up!
The interesting thing during the pandemic is that despite food and shelter being keys to survival, money is still being spent on food, but not rent during difficult times.
I like energy 2021. As this economy reopens, energy is gonna come back hard. Buy now, sell late summer.
Happy New Year.
In another post you ranked passive income instruments. I believe dividend stock investing ranked the best. But, dividend (value) stocks have lagged behind. Do you think this will continue going forward? Or, do you think stable value stocks that pay a good (2.5+) dividends will do better relative to the S&P 500 or even large tech stock that pay little, if any, dividends? Your thoughts.
I’m focused on buying laggards this year. So different in value stocks are in my target zone. I’m also very focused on buying assets that generate cash flow. So dividend value stocks fit right there as well.
Sam – great read, and like the rationale for your call for the S&P 500 for ‘21, probably because my wild assed guess is 4100 :). Not sure if you mentioned, but I think wherever we end it will be a bumpy ride as it always is (let’s hope not as much as last year), so if you’d kindly make another stellar prediction for the bottom this year it will be much appreciated. Put a lot of excess cash to work on March thanks in no small part to your post. I owe you several (good beers). Happy New Year to you, your family and the FS community.
I’m pretty sure we’re going to see 5% to 10% corrections this year. And if we do, I’ll be buying. Earnings really need to grow into valuations. Otherwise, the market is going to crap out.
Excellent article. One question, though. You wrote “if there are any 1-2% dips, I will be buying the S&P 500.”
Why buy on such small dips? I can understand someone buying shares when prices drop by 10 to 20+ percent. But if the market goes up by, say 8% (like you’re predicting for 2021) and then drops by 1 or 2%, you’re still buying shares at a higher price than they were at the beginning of the year. So why not buy throughout the year? What am I missing?
Sure. It’s my system.
See: https://www.financialsamurai.com/better-investing-figuring-out-how-much-more-to-dollar-cost-average/
Hi FS,
I was wondering if you could write a post or help me understand how you go about formulating your predictions? I may have missed something but I didn’t find an explanation of how you formulated your expectations for a rising yield curve –> higher 10Y; also the 25% earnings advance in 2021 which leads to your SP500 forecast. I’d like to be able to create my own crystal ball too!
Thanks.
This post goes into more nitty-gritty on how I make predictions.
https://www.financialsamurai.com/stock-market-bottom/
Anybody can make predictions. Whether they come to you or not is another matter. And whether you put real money to work or not is another matter as well.
Here at Financial Samurai, I always do what I say and believe in. I will reap the rewards and suffer the consequences.
Hey Sam, I love this quote:
“Once you’ve had huge principal gains, you want to convert some of these gains into a steady income stream. If you follow this strategy of consistently converting some of your capital gains into income-producing assets, you will become a very wealthy person over time.”
Can you write a post specifically related to this topic? I am looking for income-producing asset strategies and I don’t really know how to execute on an income-producing asset strategy.
Sure, here’s a post. https://www.financialsamurai.com/how-to-build-passive-income-for-financial-independence/
I plan to write another post this year about how I plan to build passive income in a low interest-rate environment.
Would it be really dumb to break the 30/30/3 rule and only put like 5-10% down for a house in SF? I fear the window for cheap downtown buying is closing soon.
It depends on how bullish you are about your future income. If you can only put down 5-10%, where else are you stretching? I do believe big city real estate will make a big comeback in 2H2021 and beyond.
The stress of hoping for a comeback and not 100% comfortably affording property doesn’t feel good.
I love the predictions Sam! FAANG tech stocks practically carried the S&P in 2020. Like you said, the NASDAQ 40X P/E is extremely high. In 2018, the market basically traded sideways, and I wouldn’t be surprised to see that again in 2021. But I’m hoping for all of our pockets that 2021 provides great returns.
I thought we were using FATMANG now, although I’m still not sure why Microsoft should be counted…
I’m very bullish for 2021 as well. Last year, I moved about 60% of our bonds to stock. That helped propelled our net worth to a new high. I plan to keep it there for at least a few years. The market feels overvalued, but I think that’s mostly due to tech stocks. Other companies will start to catch up in 2021.
Good luck everyone!
That’s why I am currently 95% equity.
Big prolonged stock market corrections are a thing of the past, given that the government is so hell-bent on propping up Wall Street at the first sign of a bear market. Flash crashes would still happen, of course, but from now on we should always expect a rocket V-shape recovery time of <3 to 6 months.
I am curious to see how work from home long term affects people’s real estate decisions in the future.
We purchased a condo in a vibrant downtown neighborhood so we could walk to work. However, we have been WFH for 9 months with no sign of return.
Sam,
This is a very interesting analysis and topic that I’ve been thinking about for the past month or so. A 25x P/E ratio for S&P is very reasonable and while I think that is expensive, it is not ludicrous.
Isn’t the current P/E somewhere around 40x today? Obviously, if the earnings actually match the expectations, the price is very cheap to get into today. However, this P/E is even higher than the tech crash that happened between 2000-2003. Are you worried about the higher P/E than the tech crash? I am and I’ve been wanting to hear a counter argument to this and that expectations are very high.
I am a big proponent that the S&P will return 10-12% yearly over the next 40 years instead of 7-10% like in the past because one $100 website can sell to 7.8 billion people as opposed to before. So I believe a 25x P/E is very reasonable, and to be frank, cheap. But I believe parking it around 40x P/E is too much.
I would love to hear your thoughts, if you do have the time. I’ve been wrestling with this and love hearing different perspectives.
Markets are always forward looking, so you’ve got to look at expected future earnings to make a prediction on where equity prices could go.
Sam, great to see someone not slamming real estate, which seemed to be the narrative in 2020. Me and my family’s properties did well save for one commercial property which was unfortunately closed for most of the year due to the lockdown.
Curious as to what your thoughts are on what your pals Wall Street Playboys are saying about real estate not being a good investment moving forward due to the threat of increased property taxes?
People are slamming real estate? Is it b/c they believe real estate did too well in 2020?
Not sure about WSP. I was a buyer of stocks and real estate in March, April, and June as I wrote in two posts. They were not so much, at least what I remember seeing on Twitter.
Property taxes can’t unilaterally go up. The people must vote. Joe Biden might ben do away with the SALT cap deduction and help the coasts.
Post references:
How To Predict A Stock Market Bottom Like Nostradamus
How Does Real Estate Perform When The Stock Market Sells Off
My prediction is that the S&P will finish 2021 lower than it is today. Most everyone is predicting it will be higher. That makes me nervous. It has been too easy for people to make money. Hell, even I outperformed the S&P this year. That really makes me nervous!! The last reason is the most important in my eyes. The Robinhood crowd hasn’t had their face ripped off yet. This time isn’t different. When you start to see this many retail investors making money, history has told us that sooner rather than later we are do for something bad to happen. I have no idea what it will be, but something ALWAYS happens.
Whether it goes up or down I will continue to invest weekly. I’ll buy at the highs and the lows and over time I’ll make some pretty good money.
I like the contrarian call! Will be taking action to back up your call? Sell equities, go short, etc?
I dare not share equities in 2021. I think there’s a good chance the fundamentally least sound companies will rally the most (Russell 2000 index).
We shall see!
Happy New Year
I’ve already taken action. Roughly 25 percent of my equities are in my trading account. The rest is in my set it and forget it account. During December, in my trading account, I sold all off the individual stocks that quite frankly I just bought because they had great momentum. A couple of those I could barely tell you what the companies do. I only kept the individual stocks that I truly believe in and would buy more at lower prices.
My set it and forget it account I did nothing. I still own my first shares bought in 1990. I dollar cost average into this account weekly and will continue till the day I die.
My forecast for 2021: first half of 2021-more of 2020 due to continued lockdowns and slow vaccine adoption- meaning stay at home and tech and real estate continue their respective runs. 2nd half of 2021-a flood of liquidity and personal savings at all time highs continue all time highs in stocks and RE.
Several corrections which make for buying opportunities. 2021 economy takes off like after emerging from a major war.
Black swans- Major conflict with China, oil shock, tax increases from senate going to Dems, currency crisis bc of dollar crash. As long as you have liquidity, no debt and cash flow all great buying opportunities for long term investment (but several of the above mentioned are not).
Great post! I appreciate your insights and hope you are oh so correct on 2021 and 2022…thanks for your time and review!
Happy New Year! Although things don’t really feel “new” yet with corona still out there, I’m hopeful this will be a better year as well. With the predictions for more improved earnings and market rebounds, I plan to deploy more cash in small tranches. I sure hope more small businesses can hang on until everything opens up completely with the help of the second stimulus. Here’s hoping to a brighter 2021!
Hi Sam,
What do you think of the emerging market equities, especially Mainland China equities? Seems like a lot of money are flowing into there to take advantage of the faster economic recovery there. Would like to know about your thoughts.
forecasts – you kept some habits from the Banking days :)
Indeed. But in this case, I’ve got my real money involved! Easy to pontificate when there’s no skin in the game.
How was your 2020 performance and what are your forecasts given you are a portfolio manager? It’s always great to hear what full-time investors think and how they have done. Thanks!
Sam
I was actually still cycling the world in the first 4/5 months (after spending the entire 2019 on two wheels)
There is probably only one good thing about 2020 – market returns that many enjoyed!
All the best in 2021 Sam,
Raph
Very cool! You’ll have to share how you were able to cycle the world and also manage client money. I regularly play tennis with a hedge fund manager and he’s ALWAYS on his phone during change overs!
I’m hoping more folks can share their forecasts for 2021 so we can all get smart and recognize blind spots. Gotta keep onto the wealth we’ve created and hopefully create more!
Nothing about Bitcoin? ;)
Not my forte Michael, but congratulations for crushing it with MicroStrategy and your investments!
Please let us know how you plan to spend your fortune. Always interesting to hear.
Sam
Come on Sam, we know you own some bitcoin!
Not enough to make a difference whatsoever.