Saturday, April 13, 2019

Where is the market going? Only the market knows

If you think I have the answer, well I most certainly do. My answer is simple: who knows? From the charts I present below, there is no accurate way to predict the market, and if anyone tells you that, walk away as fast as you can. But from my experience in 2000 and 2007, my only advice (which I'm really not allowed to provide on a professional basis, but I only use for my own investing purposes) is pay close attention. 

If that seems like a cop out, it's really not. There is no magic crystal ball. For all the talking heads (experts) on TV and in financial columns, for all their predictions, they are really not better than you are. YOU CAN MANAGE YOUR OWN MONEY JUST AS WELL IF YOU HAVE THE BASIC KNOWLEDGE. 

Here's the latest chart on the SPY, the ETF which most closely tracks the 500 stocks in the S&P 500 and is the most highly traded.  

The blue line represents an all time high and represents late 2012 through Friday, April 10. 

Here's the SPY from about 2005 until 2012. 

Here's another interesting look. The SPY from 1880 until now, represented in 2017 real dollars.

Another study, follow by Warren Buffett, is called the Case- 
Shiller index (who won a Nobel prize for this study), which measures the value of the S&P 500 against inflation. See a detailed description here: FAQ.

The same index 2 months ago

The index is up about 1.7 points, which indicates the market  is even more over-valued than two months ago. 

My take from all this. Just pay attention. You don't want to get caught with your portfolio heavily weighted in stocks (or maybe even bonds for that matter) when the market turns. Markets fall faster than they go up. In a near-future post, I'll explain moving averages, which is a good tool for the average investor for measuring (note I didn't say predict) trends. And this you can do in 15 minutes a day or less (or even weekly, as weekly movement can be just as dandy.

You'll never pick the very highest highs, or the very lowest lows, but why ride out a 50 percent loss of your portfolio. Historically, it takes 6 or 7 years just to break even again. 

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