Buffett indicator

[vituszoli2]

Dear Baptiste,
I am still a beginner although thanks to your web site and the other referenced bloggers I learned tons in the past couple if weeks. THANKS!

What do you think about the Buffett Indicator? It really looks like the US market is strongly overvalued. Can this be an indicator for a coming downturn or even a recession?

Buffett Indicator Shows Stock Market is Overvalued

The Buffett Indicator is currently 50.64% higher than its historical average, signifying that the stock market is Overvalued.

www.currentmarketvaluation.com

Apparently Morningstar comes to the same conclusion: https://www.morningstar.com/news/ma...ock-market-is-overvalued-from-any-perspective

Would you recommend to start investing a bit more defensively or maybe start rebalancing? Or to save some cash in order to be able to invest when the markets are down?

I am not at all in panic but a little bit emotional because I am investing some money my father donated me (his lifelong savings) as a kind of “prepaid” heritage.

Thansk for your thoughts on this topic,
Zoltán from Bern/Switzerland

 

[Baptiste Wicht]

Hi

The market may be overvalued, but I do not plan to do anything about it. I invest for the long term, and I disregarded any local event. So, I will simply continue to invest every month as usual.

If you think the market is too expensive, it may make sense to start an opportunity fund. This money will be available in a down turn to buy more. But be advised that most people doing that end up worse than if they had simply kept investing.

Generally, I follow the simple advice: Time in the market beats timing the market

 

[vituszoli2]

Hi Baptiste, thanks for your thoughts.

Today also JP Morgan expressed their concern about a major stock market bubble.
I try to take descisions based on available facts (Buffett index, Morningstar, JP Morgan) knowing that even them are not able foresee the near future...
It's not that I stop investing but currently I tend to invest smaller amounts of money on a monthly basis. For me this is critical as I try to reach FI in the next 8 to 10 years. I am at 48% FI ratio and according to your calculator I would reach FI in 8 years Thanks for the gorgeous tools!

What do you think about setting up an "opportunity fund" with Interactive Brokers:

"IBKR pays USD 4.83% interest on instantly available cash over USD 10,000. Accounts with less than USD 100,000 of total value are paid proportionally less."​

What do you think about diversifying towards China and India like:
UBS ETF (IE) MSCI China A SF UCITS ETF 0.3%

Thanks again for your thoughts!
Zoltán

 

[Baptiste Wicht]

Congratulations on reaching 48% FI. This is impressive. Keep it up!

What do you think about setting up an "opportunity fund" with Interactive Brokers:

I think this is a good place to keep your opportunity money as long as you are going to use it in USD. And your strategy makes sense to invest smaller amounts each month and keep some money on the side. Just be careful that, as you said, these people may not know any better.

You also need to ask yourself this question: What are you going to do with your money if in two years (or 4, ...) the crash did not happen and valuations are much higher than now?

What do you think about diversifying towards China and India like:

I think this will significantly increase your risks for little added value. China and India's markets are heavily influenced by their governments. So, a change in direction will result in huge spikes in the market. If you are worried about a global bubble, staying out of stocks makes more sense.