“Folks, no one ever got rich investing in a deposit account, particularly when interest rates remain at their lowest levels in about 300 years. The current 1% savings account rate means you’ll be waiting 72 years to double your savings. Even Noah couldn’t wait that long!”
Here’s this week’s Top 5 investor concerns:
1. “The stock market is shrinking and there’s nowhere to go.”
Well, the US stock market certainly is. From A Wealth of Common Sense: “back in November 1997, there were more than 2,500 small stocks and nearly 4,000 tiny “microcap” stocks, according to CRSP. At the end of 2016, fewer than 1,200 small and just under 1,900 microcap stocks were left. (Thanks Ben Carlson!).
But the US is the anomaly on the world stage. Ben Carlson writes, “Even though the number of U.S. listed companies have fallen significantly in this time, the number of global equities has grown by roughly 10,000 since 1995.”
Ruling: Eh, no…
2. Stocks Are Overvalued…
Yep. In the words of Michael Batnick of The Irrelevant Investor: “The cyclically adjusted price-to-earnings ratio now reads 30 for just the third time ever. The two previous times it printed a three handle, not only were future returns lower, but they preceded major market tops that would define a generation of investors.”
But that’s where the similarities to market crashes of yore end. The oft-cited CAPE ratio for these types of market top doomsday predictions is about as accurate as a politician completing an expense report. Folks, we’ve had a long, slow upwards climb since March 2009. Of course the values are going to go up!
Ruling: Don’t use measures that don’t measure correctly…
3. Index Trackers Are Your Best Bet
Hmmm…let’s see. We know that at any time in the market, approximately 50% to 60% of stocks will be priced fairly, about 20% to 30% will be undervalued, and 20% to 30% will be overvalued (normal distribution curve). So, as a clever investor, which pond would you fish in? The undervalued pond, of course. That’s where the best deals are.
And we also know that Index Trackers buy stocks from the pond where stock prices that have already risen and are continuing to rise – the fair value to overvalued pond – and sell stocks that are falling – buying high and selling low. So what exactly is it about Index Trackers that make you want to buy them?
Ruling: The rollercoaster goes round the index track, and you pay for the ride…
4. Keep It In Cash Until Things Get Better
Better than what, exactly? Carl Richards lays that out in his audio article about the ever-evasive “magic certainty button” on Behavior Gap.
Folks, no one ever got rich investing in a deposit account, particularly when interest rates remain at their lowest levels in about 300 years. The current 1% savings account rate means you’ll be waiting 72 years to double your savings.
Ruling: Even Noah couldn’t wait that long…
5. Last Week’s “Tech-Wreck” Means Another Dot.Com Bust Is En Route
I’ve just read the latest from Ned Davis Research about the expected impact of last week’s market reaction to things like Amazon’s purchase of Whole Foods. And there are a few things that everyone might want to keep in mind.
First, it’s now summer. And that means a lot less hands on the Wall Street controls to combat this type of price action. It also means a lot more opportunistic high-frequency-trader types out there, who are taking advantage of knee-jerk investor reactions to anything that goes bump after the bell for over eight years now.
Ned Davis tells us that valuations do not support the case for ongoing technology sector weakness. They also say the indicators are far less extreme than they were in 2000, and that a recovery is likely with a positive impact on global market breadth and momentum.
Ruling: Breath. Now repeat…
Consider the points of few. You have be at least a little bit contrarian to become wealthy.