Buffett indicator says stock market overvalued
cnbc.com
cnbc.com
Many people are not as safe or diversified as they think they are.
Since we’re living in an era that looks more like 1905, there’s alot of skew and the public doesn’t get access. In the 90s, companies would IPO and we were exposed to risk and gain with small caps. Now, it’s more like the standard oil trust - big private and sovereign funds are more influential.
I think we’re entering an era where active management will become critical.
I'd like to remind people that your profession should be part of your diversification decisions. (At least for those of us in the working class.)
For example, as a software developer, I am already tightly exposed to risks in the software sector even before I invest a single dollar.
You want to minimize the chance/amount that your investments implode at the same time you lose your job, which might force you to "sell low".
1. Your long-term investments should never be something you sell in an emergency. That’s what your 6-12 month emergency fund is for.
2. Giant tech companies like Microsoft have a highly diversified customer base. If you avoid investing in Microsoft you’re just investing in one of their customers or vendors, so if Microsoft is doing badly in a recession it’s a pretty safe bet that a whole bunch of other companies unrelated to software are doing poorly.
3. If choosing to minimize the chance of lost investment gains during a job loss means giving up long term returns by choosing less performant investment choices then you could just be making your overall probabilities worse.
4. You can’t actually assume that job cuts equal lower stock prices, they can often do the opposite. E.g., Microsoft has been having layoffs all year but their stock is up over 20% YTD.
Microsoft recently decided to cut off a foreign military from Azure under pressure from Microsoft employees, because that military's use of the platform was in violation of the terms of service. In these times, what happens when an action like that leads to Satya being declared an enemy of the people?
Systematic corruption means that Intel or Oracle may pop up 40% in a day. That same dynamic and punish others.
Reality is, the vast majority of people do not have the ability to have a year of expenses earmarked in liquid investments. The 50th percentile US household has <$10,000 in liquid assets, the median total net worth is $174,000 and 55% of US adults have 3 months of savings at hand.
The arguably-opposite extreme would be the folks afraid of losing their job to "AI", so they double down on investing in certain tech stocks.
Either way, just because something is overvalued, doesn't mean you'll make money selling it.