If you want to get rich through investing, don’t be “most folks.”
Most folks have already made up their minds about the stock market. Then they try to fit the facts to their opinion.
I urge you to look at the facts first, and then draw your conclusions. Don’t be “most folks.”
Right now, most folks have already decided that a stock market peak has to come soon, because stocks have gone up for about nine years.
In reality, stocks are cheap…
Specifically, the stock market is trading below its average valuation going back 28 years (which is as far as Bloomberg data goes on this subject).
What’s its “average valuation”? To find out, simply look at the forward price-to-earnings (P/E) ratio – the most common valuation metric that stock analysts use.
Since 1990, the stock market’s average forward P/E ratio has been just over 17.
You can look at the forward P/E ratio in a variety of ways. But no matter which way you look at it, it’s below 17 today…
- Based on year-end 2019 earnings estimates, the stock market’s forward P/E ratio is 16.1.
- Based on earnings estimates 12 months from now, the stock market’s forward P/E is 16.9. And…
- Based on analyst estimates for year-end 2020, the stock market’s forward P/E ratio is 14.6.
Let’s take a closer look at the second bullet. Here’s a chart of the S&P 500 Index’s forward P/E ratio based on earnings estimates 12 months from now, with data going back 28 years…
Based on this chart, you can clearly see that stocks were:
- Cheap in the early 1990s…
- Expensive at the peak of the dot-com boom…
- Cheap after the global financial crisis, and…
- Not overly cheap or overly expensive today.
Most folks won’t believe it. But the numbers are clear.
This is the greatest bull market we’ve seen since the dot-com boom. And I expect valuations to soar way higher than we’re seeing today before we see a peak in the stock market.
So if you are like most folks, and you are saying that “stocks are expensive,” then be aware that the facts just don’t fit this opinion…
The most common measure of stock market value says stocks are a hair under their average valuation.
Yes, stock prices have gone up a lot since 2009. But no, stock prices are not expensive, based on the most common measure of stock value.
Don’t be “most folks.” Instead, seize the opportunity in stocks during the coming “Melt Up”… while “most folks” are left scratching their heads.
Realize the situation is different than what “most folks” believe – and take the chance to profit from it!
Good investing,
Steve
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Source: Daily Wealth