The reason why this topic is not off topic is because if the economy is basically sick then we want to avoid stocks, in general but if the economy is basically stable then by all means invest when the price is right and the purchased object is a gorilla.
I agree. People are expecting returns that we saw in the 90s, which isn't possible. One reason returns were so good was because the economy grew AND inflation went down so multiples went up. Inflation and interest rates are low, don't you think it's more likely they'll go up? I guess they could stay flat. The time to buy stocks is when everyone hates them. That leaves room for multiple expansion when those people eventually come running back into the stock market. You want to buy when the perceived risk is highest, because in reality your actual risk is low, since the risk is being factored into the stock market. Perceived risk comes from pain and the act of looking at the past (rear-view mirror). Actual risk is based on valuation. To make money in the market, you can't do what everyone else is doing. It isn't that easy. Aristotle Onasis once said, "The secret to business is knowing what others don't." Everyone was buying stocks in January of 2000. Everyone was going to have cell phone, ect.. Many kids my age were starting to get into the market. Now that the market is falling, these people have quit looking at stocks. In every bear market, perceived risk grows as the markets go down because the damage keeps getting worse, but the actual risk declines because value is increasing as stock prices decline. At a market bottom the perceived risk is very high. Back in 1982, everything look terrible, but the reality was that things were likely to get better. Sure, I guess inflation and interest rates could have gone higher, but they were already extremely high if you look at the historical averages. I think it's important to see fear in the market. To see people claim they'll never invest again. To see fund managers claim to being all cash. Why? Because sooner or later all that money will flow back into the stock market to chase the profits I made while they all focused on other things. The number of people investing in the stock market in 2000 and the amount of optimism was probably the most euphoric and highest it's ever been. Sure it could have gone a little higher, but I should have asked my self if it was sustainable and more likely that things will get worse. The actual risk in the markets in early 2000 was high. I can't tell what the perception of risk is today. It wasn't high at all in 2000, which should have been a red flag for anyone who follows Buffett. Investors, generally, are still bullish. They have been told to stick with it. Invest for the long term, right. I think some people are putting money in the stock market because they can't get a good return any where else so they figure they might as well be in stocks. A flawed theory IMO. I think cash in the bank may be the best bet till this market corrects even more.
sscommonsense.org
Check out the chart that says, "Market Capitalization-to-GDP Ratios" It got very high. In a recent article with Warren Buffett, I think he said this was one of his favorite metrics to see when it's a good time to buy stocks. He usually likes to buy when it's around 60%. Right now it's at 100%. |
