We are in a Bubble… But is it time to sell?

Stock Market Lunacy, Extreme Valuations and Wild Rides show us we are in a bubble… But Is It Time to Sell?

In January the GameStop saga had the investing world all a twitter and the madness hasn’t stopped…

GameStop (GME) is a struggling brick-and-mortar video game retailer.

It hasn’t turned a profit in over 18 months.

YET, GME has been the target of a speculative frenzy from an army of regular investors inspired by the WallStreetBets Reddit community who gave a big finger to the hedge funds.

In January, GME soared 2,700%… before plunging 90% by early February.

Usually, after a washout like this… you don’t see speculators rush back in.

But starting in mid-February, GME soared again – by as much as 592%.

Lunacy!

Another bubble warning sign is extreme market valuations…

One of the primary ways to evaluate the perceived value of a share is to look at the price-to-sales (P/S) ration.

The P/S shows how much investors are willing to pay for each dollar of sales a company produces.

This can be used as a way of evaluating how much investors are willing to pay for “The Market” as a whole too and right now, the P/S ratio for the S&P 500 is higher than it was at the height of the dot-com bubble in 1999.

The Price to Earnings (P/E) ratio is another important indicator of value and pricing. The higher the P/E the more investors are willing to pay for one dollar of a company’s earnings per share. If the P/E ratio is 5, it means investors are paying $5 for each $1 of earnings.

The CAPE ratio is the cyclically adjusted price-to-earnings ratio. It compares today’s index level with average earnings over the past 10 years adjusted for inflation.

This helps smooth out the year-to-year swings in earnings that can throw off the regular price-to-earnings (P/E) ratio.-

This makes it a very good market valuation metric and right now it's also flashing a big, bright bubble warning.

It’s higher than it’s been at any time since the dot-com bubble.

Today, the CAPE ratio for the S&P 500 stands at 35.2. It first broke that mark in March 1998… as the dot-com bubble was inflating, two years before its peak.

BUT all this is NOT a reason to panic sell your investment holdings…

Remember, it’s easier to know what will happen in a bubble than when it will happen.

That is to say, you know the bubble will burst… but not precisely when.

Trying to time the market is a fool's strategy and even the smartest investors tend to call a crash years too early and miss out on the potentially life-changing gains on offer as the bubble continues to inflate.

So instead of trying to predict what will happen… you should prepare your portfolio for any market condition (including a bubble) with an asset allocation plan.

Don’t be put off by the jargon…

It just means putting your investment “eggs” in different baskets.

I can’t emphasize strongly enough how critical this is to your long-term wealth.

Studies show that asset allocation and robust portfolio design – not the stocks you pick – accounts for more than 90% of a portfolio’s long-term returns.

Sadly most financial advisors and the retail financial industry are stuck in an outdated and ineffective asset allocation model which puts their investors in a typical 60/40 split between stocks and bonds.

To create and maintain real wealth you must have a wider range of assets in your investment portfolio. 

In addition to equities (stocks) you also need fixed-income assets, real estate (investment property), cryptos, precious metals, commodities, collectibles, and cash. And within each of those asset classes you also need diversification across sectors and geographically.

If you haven’t watched the portfolio design masterclass yet, go and do that now. The information I give in this free training is invaluable.

You can find out more about how to design your well-diversified and asset-allocated portfolio in this free masterclass. Go here to access it immediately.…

As a Wealth Chef insider, you can access this masterclass for free. Go watch it now.

Big love

Ann

P.S. If you need help getting your bubble burst-proof portfolio designed and implemented, join me on the 2021 Investor Bootcamp.

You’ll learn about the actions to take now to make your portfolio crash-resistant… how to make money as stocks fall… how to use asymmetrical risk management to increase your upside and minimize your downside (not backside ;) ) and a proven commodities system you can use to avoid having your wealth wiped out in the next crisis.