Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22
Best Metaverse Tech Stocks Investing for 2022 and Beyond - 14th Jan 22
Gold Price Lagging Inflation - 14th Jan 22
Get Your Startup Idea Up And Running With These 7 Tips - 14th Jan 22
What Happens When Your Flight Gets Cancelled in the UK? - 14th Jan 22
How to Profit from 2022’s Biggest Trend Reversal - 11th Jan 22
Stock Market Sentiment Speaks: Are We Ready To Drop To 4400SPX? - 11th Jan 22
What's the Role of an Affiliate Marketer? - 11th Jan 22
Essential Things To Know Before You Set Up A Limited Liability Company - 11th Jan 22
NVIDIA THE KING OF THE METAVERSE! - 10th Jan 22
Fiscal and Monetary Cliffs Have Arrived - 10th Jan 22
The Meteoric Rise of Investing in Trading Cards - 10th Jan 22
IBM The REAL Quantum Metaverse STOCK! - 9th Jan 22
WARNING Failing NVME2 M2 SSD Drives Can Prevent Systems From Booting - Corsair MP600 - 9th Jan 22
The Fed’s inflated cake and a ‘quant’ of history - 9th Jan 22
NVME M2 SSD FAILURE WARNING Signs - Corsair MP600 1tb Drive - 9th Jan 22
Meadowhall Sheffield Christmas Lights 2021 Shopping - Before the Switch on - 9th Jan 22
How Does Insurance Work In Europe? Find Out Here - 9th Jan 22
MATTERPORT (MTTR) - DIGITIZING THE REAL WORLD - METAVERSE INVESTING 2022 - 7th Jan 22
Effect of Deflation On The Gold Price - 7th Jan 22
Stock Market 2022 Requires Different Strategies For Traders/Investors - 7th Jan 22
Old Man Winter Will Stimulate Natural Gas and Heating Oil Demand - 7th Jan 22
Is The Lazy Stock Market Bull Strategy Worth Considering? - 7th Jan 22
METAVERSE - NEW LIFE FOR SONY AGEING GAMING GIANT? - 6th Jan 2022
What Elliott Waves Show for Asia Pacific Stock and Financial Markets 2022 - 6th Jan 2022
Why You Should Register Your Company - 6th Jan 2022
4 Ways to Invest in Silver for 2022 - 6th Jan 2022
UNITY (U) - Metaverse Stock Analysis Investing for 2022 and Beyond - 5th Jan 2022
Stock Market Staving Off Risk-Off - 5th Jan 2022
Gold and Silver Still Hungover After New Year’s Eve - 5th Jan 2022
S&P 500 In an Uncharted Territory, But Is Sky the Limit? - 5th Jan 2022
Quantum AI Tech Stocks Portfolio Current State - 4th Jan 2022
The Alibaba Stock Market - 4th Jan 2022
Will Gold & Silver Be Investment Outcasts in 2022 Again? - 4th Jan 2022
Stock Market Happy 2022 Entry - 4th Jan 2022
Complete paradigm shift will make Gold the generational trade - 4th Jan 2022
Corsair MP600 NVME2 1tb Drive Sudden DEATH Failures - Back Up NOW! - 4th Jan 2022
AI Tech Stocks Portfolio Updated Buying Levels and Zones Part 2 of 2 - 3rd Jan 2022
Stock Market Sentiment Speaks: 2022 Can Be Your Best Year Ever - 3rd Jan 2022
2020-22 - Soaring costs of the West's Pandemic failure - 3rd Jan 2022
AUTODESK (ADSK) - CAD - Metaverse Stock Analysis Investing for 2022 and Beyond - 2nd Jan 2022
Stock Market Sector Themes In Play For 2022 - 2nd Jan 2022
Excuse Me Mr Gold. What Year Is It? - 2nd Jan 2022
Stock Market Early 2022 Should Continue Melt-Up Trend In January / February - 2nd Jan 2022
UK Energy Crisis WARNING 2022 - How to Avoid Huge Increase in Gas and Electric Fuel Bills Right Now! - 1st Jan 2022
Why You Need A PR Expert For Your Financial Startup - 1st Jan 2022
TENCENT- Chinese High Risk GAMING Metaverse Stock Analysus for Investing 2022 and Beyond - 31st Dec 21
Gold Price Forecast 2022 - The Golden Year - 31st Dec 21
Will 2022 Be Better for Gold Than 2021? - 31st Dec 21
Gold Stocks – Wishing And Hoping (And Losing) - 31st Dec 21
Sheffield Christmas Market 2021 SANTAS GROTTO at Peace Gardens, City Centre Sights and Sounds - 31st Dec 21
Nvidia Leaves planet Earth - AI Tech Stocks Analysis - 30th Dec 21
Google (Alphabet) AI Tech Stocks Analysis - 30th Dec 21
Stock Market Santa Rally Challenge - 30th Dec 21
Sheffield Christmas Market Stalls, Sights and Sounds 2021 - 30th Dec 21
Investment Roadmap for 2022 - 30th Dec 21
2022 – The Year of (Gold) Inflation? - 30th Dec 21
Overvalued Stocks and Housing Perfect Storm for Gold - 30th Dec 21
My Most surprising Crypto call to date - 30th Dec 21
What is a Rehab Clinic and How It Is Beneficial for People? - 30th Dec 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Here's How You Figure Out Where the Stock Market Is Headed Next

Stock-Markets / Stock Markets 2010 Jun 06, 2010 - 07:03 AM GMT

By: DailyWealth

Stock-Markets

Best Financial Markets Analysis ArticleDan Ferris wites: If you want to get an idea of where the overall stock market is likely headed in the next few years, just take a step back and think about Mr. Market's wild mood swings of the past few years...

After a three-year depression lifted in late 2002, Mr. Market became irrationally exuberant all over again. By late 2007, the S&P 500 hit a new all-time high. Stocks were king. Nobody thought about risk.


About a year later, risk was all anyone could think about. The market fell more than 50% from its late 2007 highs. That was the worst year since the Great Depression. Mr. Market continued to sink into an ever deeper funk as the market bottomed in March 2009.

From that point on, Mr. Market went back on the happy pills. He became more wildly manic than he's been in decades. At recent levels, the S&P 500 is up roughly 60% off its bottom.

Where are we now? The question is rarely this easy to answer.

The stock market is clearly overvalued by the three measures that count: price-to-earnings ratios, dividend yields, and the value of stocks relative to the whole economy. Let me show you...

The Wilshire 5000 Index covers all U.S. stocks from ExxonMobil down to those of less than $1 million in market cap. These stocks trade for around 23.4 times earnings. That's expensive. Flip that number upside down, and you get the "earnings yield" of the market. At 23.4 times earnings Mr. Market is offering you a 4.27% return on your money. That's not nearly enough. Inflation will destroy that return in the next few years.

The second important valuation measure of stocks is cash dividend yield. The yield on stocks right now is about 1.75%. At that rate, it'll take about 57 years to double your money. I'm 48 years old. I don't have 57 years to double my money. Dividend yields aren't in Extreme Value territory until they hit about 5% for the overall market.

Finally, U.S. stocks are currently valued at just about as much as the entire U.S. economy. The latest gross domestic product figure published by the Bureau of Economic Analysis is $14.6 trillion. The entire market capitalization of U.S. stocks is right around $14.5 trillion. Historically, the market has been overvalued above roughly 80% of GDP. Today, at close to 100%, the stock market is getting ridiculously overvalued. Mr. Market doesn't seem to understand there's a little more to the U.S. economy than 5,000 publicly traded companies.

I don't waste time predicting the short-term direction of the market. I only assess valuations and make a judgment based on how cheap or dear the market appears to be.

Stocks are pieces of businesses, and Mr. Market is asking too much for most businesses these days. Either the businesses rapidly grow in value, or the market corrects. It's not hard to believe a market correction is more likely than ubiquitous hypergrowth.

Moments like right now are when a compulsion to buy stocks will serve you worst. Don't buy any stock that isn't financially strong and demonstrably cheap.

For example, I love the idea of buying a cash-gushing, World Dominating franchise like Microsoft for around 10 times cash flow... or paying well under 10 times cash flow for ExxonMobil, the world's best-managed big oil company. I can't stand the idea of paying 15 or 20 times cash flow for your average retail, homebuilder, or tech stock.

Microsoft and ExxonMobil are both dirt cheap right now... and I'm willing to bet they'll be dominating their industries and treating shareholders right five, 10, probably 20 years from now. I can't say the same about the vast majority of the overpriced Wilshire 5000.

If you're like me – concerned about the overpriced market, concerned about another leg down in the housing market, and skeptical of Washington D.C.'s plan to borrow and spend our way out of debt – World Dominating companies are where you want your stock portfolio to be.

Good investing,

Dan Ferris
P.S. As I said, right now, you to want to be extremely selective about what kind of businesses you will buy... and extremely stingy on what price you'll pay to own them. I have a list of eight recommended World Dominators. Five are in buy range right now. These are the world's greatest businesses selling at absurdly cheap prices. To learn how to get immediate access to this list, click here.

http://www.dailywealth.com

The DailyWealth Investment Philosophy: In a nutshell, my investment philosophy is this: Buy things of extraordinary value at a time when nobody else wants them. Then sell when people are willing to pay any price. You see, at DailyWealth, we believe most investors take way too much risk. Our mission is to show you how to avoid risky investments, and how to avoid what the average investor is doing. I believe that you can make a lot of money – and do it safely – by simply doing the opposite of what is most popular.

Customer Service: 1-888-261-2693 – Copyright 2010 Stansberry & Associates Investment Research. All Rights Reserved. Protected by copyright laws of the United States and international treaties. This e-letter may only be used pursuant to the subscription agreement and any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), in whole or in part, is strictly prohibited without the express written permission of Stansberry & Associates Investment Research, LLC. 1217 Saint Paul Street, Baltimore MD 21202

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Daily Wealth Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in