What the experts say
Are puny P/E ratios a worry?; Investing sans stocks; The Nordic tiger
Are puny P/E ratios a worry?Typically, when corporate earnings rise, so too does the price investors are willing to pay for company stocks, said Paul J. Lim in The New York Times. But while “most investors now say they are optimistic about stocks,” valuations as measured by price-to-earnings ratios belie that sentiment. The P/E for the Standard & Poor’s 500 index, now about 13, is down from about 15 this time last year. As the pace of growth slows, investor enthusiasm apparently has fallen. But don’t pull out of stocks just because a near-term rebound in P/E ratios seems unlikely. “Investors can still be excited about stocks based on earnings growth alone,” says Duncan W. Richardson, chief equity investment officer at Eaton Vance. A rise in P/E ratios, he says, would be “icing on the cake.”
Investing sans stocksMost financial advisors agree that putting together a portfolio completely free of stocks would be akin to committing “financial suicide,” said Adam Shell in USA Today. “Less risk means lower rewards,” and over time that can be more dangerous than the occasional stock-market blow-up. But for investors terrified of stocks, it is possible to get “decent” returns without them. The key, says Don Luskin, chief investment officer at Trend Macrolytics, is to spread cash among “as many other assets as possible.” A no-stock portfolio should include a “healthy dose” of commodities and precious metals, high-yield corporate bonds or funds, convertible bonds, and emerging-market bonds. Of course, stock-averse investors should keep this in mind: Where there are equity-like returns, there is also equity-like risk.
The Nordic tigerThere’s more to Scandinavia than high cheekbones and Swedish meatballs, said Reshma Kapadia in SmartMoney. Most Nordic economies are growing faster than those to their south, and the governments have little debt to speak of. In fact, Sweden, Norway, and Finland boast negative net debt, a clear indicator “of good fiscal health.” At a minimum, Scandinavia offers a “safe haven for investors.” But some managers believe that’s an underestimate of its potential. Many Nordic companies “are exporting powerhouses,” and stand to benefit greatly from growth in China, India, and the rest of the developing world.