Best time to buy stocks since 1980s?

Legg Mason's Bill Miller gets bullish and sees the best market since the Reagan era.

By Anthony Mirhaydari Oct 20, 2010 1:56PM
Over the past two months, I've been focusing on how stocks are preparing for an epic bull market, thanks mainly to the current boom in bonds. (See columns here and here.) At its most basic, the catalyst will be corporate releveraging as executives take advantage of ridiculously low bond yields to conduct M&A activity, increase dividends and repurchase shares.

It looks like I'm not the only one.

Legg Mason Capital Management chairman Bill Miller told CNBC today that he thinks it's "the best time since the early 1980s to buy." His rationale? The same as mine: Stocks are undervalued relative to bonds. Here's why.

In his words: "The last 10 years have conditioned people to think short term as opposed to long term. Now stocks are cheap and people should buy good, quality companies at reasonable prices, put them away and ignore the day-to-day fluctuations of the markets."

I couldn't agree more. While I still anticipate a broad market pullback over the coming weeks as some of the speculative dollar-drop risk trade is unwound, it doesn't change my over-the-horizon perspective that stocks are headed much higher from here.

How high? In my Sept. 29 column, I featured a price target, based on a model developed by Citigroup strategist Tobias Levkovich that suggested the S&P 500 could nearly double over the next year. This is based on 2011 bottom-up earnings-per-share estimates, 10-year Treasury yields and the equity risk premium.

If you think this sounds ridiculous, then consider the impetus another round of money printing, or quantitative easing, from the Federal Reserve could provide. Remember that the entire March 2009 to November 2009 rally in U.S. stocks, which accounts for the vast majority of this bull market so far, occurred during a period of quantitative easing. Similar stock price appreciation was seen when the Bank of England and the Bank of Japan deployed quantitative easing strategies to kick-start economic growth.

And finally, history also suggests we're on the cusp of something big: Stocks have badly lagged both on an absolute and a relative basis over the past 10 years. The performance has been so dismal that you have to go back to the 1930s to get a similar period of despair for the stock market.

But take heart, because periods of deep underperformance tend not to last long, and they are typically followed by periods of massive outperformance by the stock market -- including the 1860s railroad bubble, the steel bubble of the 1900s, the post-World War II bull market and the 20-year bull market of the 1980s and 1990s.

Be sure to check out Anthony's new investment advisory service, The Edge. A free trial has been extended to MSN Money readers. Log in using the following credentials: user name: freeuser; password: edge

 

The author can be contacted at anthony.mirhaydari@live.com. Feel free to comment below.

12Comments
Oct 20, 2010 4:42PM
Oct 21, 2010 6:00AM
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I hope that you are wright. I went down over 40% in the last crash. It's a long way back. I hope that I live long enough to see the uptickSmile
Oct 20, 2010 9:44PM
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I think he said the S&P would double not the Dow.
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 Anthony, You aremy kind of guy. On March the first I made a list of stocks that were under valued.

    Ford                        $1.01    per share

    Unisis                          .28

    Ruby Tuesday             .85

    XM Radio                     .05

    Avis Rent-A-Car           .34

    On March the 3rd  a guy was talking about what great time to be in the market.  The date was 3 x3=9

   03-03-2009. 

  This was March, I did'nt get my check for $183,650.29 untill July. By then the race was on.

 

Oct 21, 2010 10:46AM
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I like that we still see a lot of negativity, it only ensures that this is a great time to buy!  I think it will be even better sometime between t-giving and the New yr.  I like the major oils, the dividends are great, and people seem to forget how fast oil can go up!  We need 1 more oil shock for people to get serious about hybrids/electric cars.
Oct 24, 2010 11:03AM
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Anthony,

Your portfolio looks like balanced on investment point of view, if you add the target price and stop loss to make it more professional will be helpful for us. Personally I'm impressed the way you convinced logically the shape of future stock market. Most probably you will be right up to a great extent, I believe.Smile

Oct 21, 2010 4:21PM
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go vote the liberal punks out  stocks will go  up change we  can  belive  in this time  around its sad   to lesson to pelosi obama and all those freeloaders thy remind  me hitler  tolking
Oct 21, 2010 1:55PM
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Actually, dam tired of this, person finance and investing have been hobbies of mine for 20 years, and I've made a lot of money. Don't assume that someone is unread.

 

Laughing all the way to the bank.......

Oct 21, 2010 11:04AM
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what is this guy smoking? S&P at 2000 next year is completely ridiculous.
Oct 21, 2010 12:30PM
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Guys, even with the economy, I've made money, and I've been buying stocks steadily for the past two years. With the current administration, companies large and small, and individuals, have been sitting on their cash, not knowing what was going to happen to taxes, insurance and inflation. With the elections coming up, hope is on the way, and all of that cash will be spent sometime, companies with new equipment and hiring, individuals that have been holding off on purchases. Things wear out, and are going to have to be replaced sometime. Now is THE time to buy stock. Don't be late.
Oct 20, 2010 9:59PM
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I give a greater chance of aliens landing on the White House lawn than the S&P doubling to 2,300 by next year.

I'm sure Mirhaydari is fully invested in the markets right now, waiting for that double.  Yea right......

Oct 21, 2010 8:25AM
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We'd all like to believe the so called experts. However, they've led us down the garden path many times before. How a robust stock market jibes with a socialist president I just don't know. It seems to me that the more central control of the economy the weaker the stock market will  be.

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