Schwab warns of 5 money traps risking savings, investments

Investment Analysis Clubs Macro Economic Trends and Risks
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{{ 1. Postponing retirement savings and missing years of compounding growth
2. Failing to build or maintain an adequate emergency fund of three to six months of expenses
3. Selling investments during sharp market declines instead of holding a long-term position
4. Keeping too much cash on the sidelines and missing out on equity gains
5. Over-concentrating a portfolio in a single stock, sector, or asset class }}

https://www.thestreet.com/personal-finance/schwab-5-money-traps-draining-retirement-savings

How long have METAR experts been predicting doom? Years?

intercst

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Such as an overvalued S&P500 index fund during a bubble?

Wendy

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What asset classes aren’t “overvalued” today?

intercst

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Pipelines might not be overvalued.

I bought a lid and pot for $20 in 2021 during the pandemic. Now a similar product out of China is $9.99. There is an undergrowth of profitless companies that are not overvalued, but there is no sense in knowing about them.

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America Is Great at Creating Stock Market Bubbles—and Shrugging Them Off

One day the bust will be the big one, but for now the pullback in AI-related stocks has been almost completely offset by gains elsewhere

https://www.wsj.com/finance/stocks/stock-market-bubbles-recovery-029d21d0?mod=hp_lista_pos3

That’s pretty much been my thesis all along. If AI turns out to be a low margin commodity, all other firms implementing AI for the operations will benefit from the lower pricing. The productivity gains for the overall economy will likely be greater than “the losses from the AI bubble”

Own the broad market index to protect your downside – and Long-Term Buy & Hold.

intercst

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If you need to quote the WSJ to argue market positions, you have lost your compass.

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More money is lost in worrying about bubble and waiting on sidelines. It is difficult to predict how long a rally will go. So, it is better to sell on the decline. But, different folks at different stages of life, return expectation has to adjust as their individual situation requires.

Just blindly saying SP500 is overvalued or a bubble ignores many facts.

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You don’t need the WSJ to vouch for LTB&H. Over 200 years of stock market history does that.

I read Prof. Jeremy Siegel’s landmark book “Stocks for the Long Run” way back in 1994 when it was first published. I haven’t needed employment since.

intercst

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Tell it to Michael Burry. Or George Soros.

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You are not them. Taking extraordinary traders or billionaires as an example is another mistake many individual investors do. You are smarter than that.

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They are obvious examples. There are hundreds of thousands of people shorting stocks daily, and lots of them “win.” I have only shorted things three times, and came out ahead twice, and lost a trivial amount (~$400) on the third (and would now be thousands, perhaps tens of thousands ahead had I waited.)

Predicting doom and gloom isn’t fun, but it can be profitable. After all, every time you sell a stock - even a winner - aren’t you making a forecast that it’s the weakest hand in your portfolio at the time? Why else would you sell? Doing so over a broad market is no different, it’s just, uh, different.

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By your own words, in an investing carrier that spans many decades you have just done 3 times. Just consider that…

I short regularly… it is not an easy game. A trader, who is glued to the screen and executes thousands of trades a year is not an example for individual investor.

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REITs. Some are overvalued but many are undervalued. I still go by the old adage, it is a market of stocks not a stock market. You can find undervalued stocks/companies if you spend the time.

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@JLC I agree with you.

I built my own stock screener at Fidelity based on the qualities of the corporation - cash flow, P/E ratio, dividends, growth rate. The list used to have over 15 stocks. Recently the list has had only 2 or 3 stocks. The market is rotating out of overpriced tech stocks and into more value-oriented stocks. It’s getting harder to find reasonably priced quality businesses.

What stocks are you buying now?

Wendy

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How you arrive valuation and which ones are undervalued? At the best you can call them fairly valued, but undervalued… I am interested to know the names or even the sectors…

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It is fleeting… For ex: $BABA was down to $90 post Qtry results, at the end of June and today we are $128.58. I posted on July 1st for the signs of bottom and reversal…

If you look at $AMZN, $MSFT all were languishing and trading on a range and post results had a breakout… $appl FROM $275 rallied to $340 and post result now trying to hit $300…

25%, 30%, 35% moves are happening in 1 to 2 months time on trillion $$ stocks. So there are opportunities to buy… but you have to fight the fear.

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The one stock on my radar is NEE. One big reason, if the merger goes through with Dominion (D), the new company will become the largest regulated utility in the US and its footprint will cover population shifts, data center build out, and other infrastructure build outs.

Things I’ve bought within the past year or so: PLD, WPC, UNP are still good buys but no longer undervalued.

Three that I’ve bought looking as “turn around/cyclical stories”: VICI, PFE, KMB

One that I’ve owned forever because an uncle gave me $50 worth of stock as a high school graduation gift: SO. Still a good buy and FWIW placed online 2 nuclear reactors in the past 5 years or so.

My overall philosophy is undervalued dividend paying stocks. Hold and collect dividends. aka Benjamin Graham.

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Depends on how you look at it. As we know, a mere 9 companies make about 40% of the S&P 500 by cap weight. So if there is a bubble, that’s where we’ll find it.

One one the many ways to value stocks is the Price Earnings Growth (PEG) ratio.
PEG is often useful when trying to determine if high growth companies that have high PE’s but are still good value. The thinking is that a typical company makes about 10% profit a year which the market values at about PE 15. But if it making 20% profit, a higher PE is justified. A PEG of 1 means the price is growing at the same rate as the stock, and the stock is considered fairly valued by the metric. A PEG below one indicates the stock is undervalued, and above one is overvalued.

I had ChatGPT create a table of the top 8 companies by market cap, P/E , and PEG ratio.

A couple notes: Alphabet is listed twice, once for each class of stock. I’m too lazy to fix it. The ninth company is Berkshire Hathaway, which I believe is slightly over valued, but PE and therefore PEG really isn’t a valid metric for it, so I skipped it.

Rank Company Ticker S&P 500 Weight Trailing P/E PEG Ratio*
1 NVIDIA NVDA 7.4% 30.1 0.40
2 Apple AAPL 7.3% 40.6 2.88
3 Microsoft MSFT 4.2% 23.4 1.17
4 Amazon AMZN 3.7% 27.8 1.74
5 Alphabet Class A GOOGL 3.0% 16.4 1.06
6 Alphabet Class C GOOG 2.8% 16.4 1.06
7 Broadcom AVGO 2.7% 63.9 ~1.0
8 Meta Platforms META 2.2% 21.6 1.01
9 Tesla TSLA 1.8% 281.1 10.5

Going by PEG, AAPL looks overvalued. The stock is down since they announced earnings so they are being appropriately punished. TSLA is wildly overvalued, but it is less than 2% of the index. Everything else looks pretty rational. And these are high growth companies. By this metric it might be a good time to buy an index fund. Shoot, might be a great time. Some of these company’s earnings growth have just been bonkers this year.

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Buffet did both.

0987654321

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I love this philosophy and it has been my path to success since the 1990’s!

JimA