- Volatility can tell you when to buy, but valuations tell you when to sell.
- In the 2000s, faster than expected earnings growth, low transaction costs and reduced risks from lower volatility were considered factors of the “New Era” for stocks.
- These days, low interest rates and low inflation are new factors that create the “New Era,” while the PE ratios just grow and grow. Does this sound familiar?
Apart from professionals, you rarely find investors who are passionate enough about their investments to make it their day-to-day and weather through the peaks and troughs in the market.
There are many traders, especially young ones, who were unaware of what stocks were back in 2009 that now believe they are the kings of the world as a result of the tailwinds of the current bull market. In such an environment, valuations are ignored and investors become euphoric which makes them believe, for example, that the merging of Tesla and Solar City is a good idea, or that Facebook will have everlasting growth. In reality, our “new normal” is one of negative interest rates and low yields. More →