What About Those Scary Charts?

I've got a friend, let's call him "Andy."  Andy is one of the smartest people I know.  He's run multiple companies, taught as an adjunct college professor, and is a biblical scholar.  So, needless to say, Andy's a smart guy. 

But there's one thing Andy can't make sense of: how, in the face of all the scary-looking but very intelligent-sounding charts Andy sees in The Wall Street Journal, Barron's, Yahoo Finance!, etc., the stock market doesn't go down?  Indeed, almost every week, I get emails and forwarded articles containing a barage of complex-sounding and technically named charts and statistics regarding the S&P 500's forward price-to-earnings ratio, excess CAPE yield, net equity issuance, index concentration and, well, I could go on.  And all of them point to one thing - this stock market is overvalued and in need of a large correction!  Needless to say, Andy is concerned, and has been for quite a while.  And yet, here we are, stocks still sitting near all-time highs. 

First, let me say that nothing Andy has ever forwarded me has been "incorrect."  It's all data collected by reputable sources - banks, universities, the Federal Reserve, etc., and those charts do look scary.  But accurate as Andy's data may be, these measures of a stock market's "expensiveness" are quite subjective.  Stocks can remain "overvalued" for years and valuation gauges themselves are subjective.  Even the baseline for what counts as "expensive" can shift over time as corporate structures or accounting standards change.  Furthermore, never, in my 28 years of investing, have I seen any of these technically sophisticated named measures of valuations and CAPE yields and anything else Andy has ever sent me proven to be useful to identifying stock market tops (or bottoms) in the short to intermediate-term.  Again, as I just said, "stocks can remain 'overvalued' for YEARS..."  

When will Andy's charts matter?  I don't know.  As I said a few months ago, "...it's not our job to be right, or sound smart, or choose the exact top and/or bottom price.  It is our job, however, to make money."  Will Andy's charts ever matter?  Yes, I think they will... someday.  And Andy wants a shoutout when they do (fair enough, friend ;)  However, until that time, I'm going to focus on using the charts I have found useful for measuring the market's likely performance in the short to intermediate term and, right now at least, those charts continue to say that while things may be a bit rough in the short-term, the intermediate to long-term sitll look "okay."