The Current Market Conditions
If the market is going to go down, what can I invest in now.?
The Current Market Conditions
If the stock market is going to tank, what can I invest in?
Private investors dealing with small amounts of capital shouldn't have a problem finding value regardless of where the market is at. Just because the market is overvalued does not mean that there are not individual stocks which are undervalued.
Where to look?
I periodically check morningstar's wide moat index to see which companies appear to be undervalued;
I also trawl through 52 week, 3-yr and 5yr lows to look for ideas;
I look to see what stocks super investors are buying;
I look to see what insiders are buying;
I look at special situations like spin-offs;
I look through lists of foreign companies trading as ADR's/GDR's
I look through OTC stocks for ideas;
You can also look at which commodities are currently near the bottom of their cycle and find companies which are involved with them or buy the commodity itself. Silver, Platinum, Uranium all look cheap to me.
You could also look at, reits, master limited partnerships, and maybe sell put options. Also if you have global coverage with your broker look at other markets which are cheaper.
We have an advantage being private investors dealing with small sums, we are not limited by corporate charters etc, We can find value in places where the large investors do not or cannot look at. If you look hard enough you'll find value.
Thanx david. That's quite comprehensive. But definitely, index funds are not the way to go now
Why are index funds something to avoid?
Well. First understand I know little about investing. But if the market is going to crash, and you own an index fund, then that fund will follow the market and crash too. But in general, index funds are good but I wouldn't get into one now.
I suppose it depends on whether you're talking about a one time purchase or this month's contribution, along with what your time horizon is.
I think that dollar cost averaging wins over the long term, and for me, I'm unconcerned with what the value of any ETFs will be at the end of this year (or even at the end of this decade); I won't be selling them anyway....
Look at the S&P in 2007 - if you bought a related index during that year, you could say the same thing: "why buy now, when the price is about to drop?". And you'd be right, it lost about 50% of its value. But now, only 10 years later, that price (from the peak in 2007) has nearly doubled.
I'm not certain I have the best strategy, but consistently buying 60/40 stocks/bonds (through index funds) seems to be the least risky option for any point in the cycle. It's not very exciting, though....
That's a really good post, thanks David!
Index funds are good. You just have to manage it. How's this?
10% 1 year GIC
10% 2 year GIC
The market will drop. Expect it. Have cash ready to buy more.
"The market will drop. Expect it. Have cash ready to buy more."
Agreed - I re-balanced some of my retirement accounts last night very close to what you stated - those were previously in index funds following the S&P 500. It seems the narrative has switched from being somewhat cautious to optimistic. I am still cautious and there are a lot of overpriced companies out there.
Nice posts. Thankyou all. What is gic? Yes if you bought the index fund in 2007 it would have done well but if you bought it after the crash, you would have had it cheaper. I'm just not sure what to do. Maybe 5 percent bonds and CDs are coming
edited January 27
Buying at the top just means you have to wait longer for a profit..
I bought real estate at the top three times, but I am ahead 1000’s of percent
on that same real estate today.
Definition of GIC..
Yes. Thankyou norm. But buffet suggests buying cheap?
Warren Buffett, famed investor: “I’d rather be certain of a good return than hopeful of a great one. -- Most investors are better off putting their money in low-cost index funds."
It seems that the market is quite high now and I don't want to appear daunting. But market analysts predict a rocky road ahead unlike what we have seen before so if the market crashes, it may not go as high as twenty six thousand again for decades
These stock pronoistigators are always saying the market is due for a correction, some day they will be right.
On a pure value basis you can expect better returns over the next 10 years from an emerging market etf rather than a US market etf..
I don’t understand why anyone would hold a US market etf at the moment.. it’s so expensive.. if you have to invest in the US wait till a correction...
Fomo is your enemy...
The majority is always wrong...
The S&P has a current earnings yield of 3.7%. The index would have to fall by half just to get back to a historically average ratio..
It’s only been higher in 2000...
Thankyou for all your comments
edited January 31
I just listened to episode 28, where Preston and Stig have their first mastermind meeting on the podcast (I just started the podcast recently). Back in early 2015 they were already moving into cash positions and I'm wondering if they continued in those positions until now. I'm Canadian so, I invest primarily on the TSX. We had the major correction in early 2016 from the oil price crisis but how do I determine if the market is over-inflated today?
(I'm also fairly new to investing. Right now I'm heavily in an equity position vs. cash)
edited February 1
Hey David there's a bunch of different index's on how to tell if the market (in general) is overvalued.
The Shiller Index:
This is just the average price to earnings ratio of the S&P 500. If you take a look right now we are currently at 34.13 which is above the level before the great depression, but err.... ykno thats just a very scary thing to say lol, but the reality is who knows when/how much the market will drop when it does.
This is the market cap vs. GDP. That is currently at 148.3% while a ratio above 115% could be considered significantly overvalued.
Private debt vs. GDP:
Errr.. I'm sorry I can't think of good stuff to say off the top of my head, but here is another indicator as you can see before the crash in 08/09' the ratio was well above 210. Anything above 150 is kinda like.. whoaa mama. Also I'm not sure if this is insightful as to whether or not the market is overvalued, but more rather of maybe a crash could be coming.
However, it would be a shame if these factors prevented you from investing. You never know how long a bull market could run and what the stock market does is always surprising. I would suggest trying to hold more cash and maybe not as much equities, but i feel like from what i've read so far you should always at least be a little bit invested in equities. In the intelligent investor Benjamin Graham suggests a ratio between 50 - 50 to 70 - 30 of bonds to equities when markets are overvalued But bonds are kinda trash right now.
Something you may be interested in is Marcus by Goldman Sachs. it's an online only bank so you might not be able to pull your money like literally on the nano second, but whatever. It has a 1.5% yield!!! That's only half a percent below the current 2 year bond yield. Soooo thats pretty cool.
Thanks Shawn! I will check those out.
Doing nothing is intelligent behavior.