And when the time comes, you just know.
You know it's going to happen. Get ready for it, boy. The sooner the better. The stocks will collapse. It's only a matter of time. Why?
Simple:
It is easy to get lost in a thousand details and exciting stories when investing. Yet it is often the very simple signals that are the most meaningful. In the case of stock selection, for us simple-minded people this is the free cash flow yield. What does a company effectively yield for its owners? With a view to the financial markets as a whole, it is also simple yield comparisons that usually receive too little attention.
Currently the cash yield on the US market, at 5.25%, is significantly higher than the yield of a classic portfolio of 60% equities and 40% bonds, which according to SocGen yields only 3%. The fact that risk-free liquidity yields more than investments with risk is historically not the normal case, but always a warning signal. This was most recently the case in 2000-2001 and 2006-2008 - both times the US stock market subsequently collapsed by 50%. Then interest rates fell and the meaningful relationships were restored. But this clear return signal is being ignored today just as it was in 2000 and 2007. Most investors are focusing on the investments that have performed best over the last five years. So they buy returns of the past instead of those currently available. This also explains the enduring penchant for extremely expensive tech stocks. After the 2008 financial crisis, the same behaviour was mirrored: Risk assets yielded 4%, cash 0%. But for many years afterwards, hardly anyone wanted shares because they were perceived as too "risky" with a look in the rear-view mirror.
More important is the question: how will you, personally, with your specific portfolio, stand when that time comes?
We suggest you look at the one true thing that has not been replaceable for millennia - GOLD.
Simple:
It is easy to get lost in a thousand details and exciting stories when investing. Yet it is often the very simple signals that are the most meaningful. In the case of stock selection, for us simple-minded people this is the free cash flow yield. What does a company effectively yield for its owners? With a view to the financial markets as a whole, it is also simple yield comparisons that usually receive too little attention.
Currently the cash yield on the US market, at 5.25%, is significantly higher than the yield of a classic portfolio of 60% equities and 40% bonds, which according to SocGen yields only 3%. The fact that risk-free liquidity yields more than investments with risk is historically not the normal case, but always a warning signal. This was most recently the case in 2000-2001 and 2006-2008 - both times the US stock market subsequently collapsed by 50%. Then interest rates fell and the meaningful relationships were restored. But this clear return signal is being ignored today just as it was in 2000 and 2007. Most investors are focusing on the investments that have performed best over the last five years. So they buy returns of the past instead of those currently available. This also explains the enduring penchant for extremely expensive tech stocks. After the 2008 financial crisis, the same behaviour was mirrored: Risk assets yielded 4%, cash 0%. But for many years afterwards, hardly anyone wanted shares because they were perceived as too "risky" with a look in the rear-view mirror.
More important is the question: how will you, personally, with your specific portfolio, stand when that time comes?
We suggest you look at the one true thing that has not been replaceable for millennia - GOLD.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.