Hello! Stock market lately does not let you get bored and falls. Therefore, it will be relevant to write about the signs of an impending crisis in the financial market..
Crisis Signs Crisis Signs
Today I will write about 5 harbingers of the crisis, which I read about in the book The Prudent Investor" Benjamin Graham and some other investment books.
Primarily, Tell, that the market is unpredictable and it is impossible to draw any unambiguous conclusions from books or statistics. Therefore, even if the statistics, indicators, analysts and other sources talk about the possibility of a certain event in the financial market, then this is not a reason to do anything, drastically changing your investment strategy. She must take into account all possible scenarios without this., but more on that at the end of the post.
so, What did Warren Buffett's teacher bequeath to us? – Benjamin Graham in his book The Intelligent Investor, as well as authors of other books, of which I singled out for myself & quot; signs" crisis? In fact, I have learned a lot from investment books and I think, that everyone, who is interested in the stock market, should occasionally read the relevant Books. I have highlighted many ideas for myself, new knowledge, quote and, in particular, 5 signs of a possible crisis from the books I called these signs `` signs" crisis and wrote it down in my notebook on my phone. I was waiting for the right moment, to write about them. Hope, that now is the moment.
1. High P / E of the whole market. I already wrote about the P / E indicator, and also about its modernized version – CAPE, designed by Robert Schiller. More about this in the posts.: & quot; Stock returns in the following 10 years & quot;, and & quot; P / E Ratio. Expensive now or cheap?". PE – it's easier to put it, #return on share price by company profits. On average for the last 140 years for the American market, it is about 15-20. It is now equal 46. The CAPE coefficient at the same mean values is 38. I took the data from the site multpl.com
2. Increase in bond yields. If earlier there were only expectations of rising inflation, now the statistics show, that inflation has accelerated around the world. This, in turn, causes an increase in bond yields., because. investors with high inflation, other things being equal, are ready to buy bonds only cheaper, to cover inflation in terms of profitability. Growth in bond yields redistributes capital from the stock market to more attractive bonds. And the less invested in stocks, the lower the prices.
3. Stock dividend yield is lower, than bond yields. This point follows from the second. Now the dividend yield of all shares in S&P 500 averages 1,35%.
US two-year government bonds – 0,2%.
10-Summer – 1,2%.
Data taken from ycharts.com and Investing.com
So long, as we see, stocks are still more attractive than bonds in terms of yield, but the difference is small. Although a couple of months ago, the yield on 10-year US bonds reached 1,8% per annum.
4. Growth in the issue of second-rate shares. Under the issue here, first of all, implies numerous IPOs, which are taking place lately. According to statistics in 2020 record numbers for IPOs in the USA were recorded in the year. They doubled the level 2019 of the year.
But the level 2020 years already beaten for 1 half of 2021: according to Dealogic, from January to June 2021 of the year, American companies carried out share placements for $171 billion. IN 2020 year, the volume of IPO in the United States amounted to $168 billion. In this way, indicators of the current half-year are already at $3 billion (or on 1,7%) exceed the value of the entire previous record year.
According to Reuters, cause of the IPO boom in 2021 year are sky-high valuations of companies on the stock market, inflated by low interest rates FED and continued monetary stimulus. In other words, when people take exorbitant prices, why not sell your company?
Fear is caused by the fact, that most of the companies, going to IPO are unprofitable, but, how often do they write, & quot; with great growth prospects & quot;. As a result, people buy non-business as a long-term investment for the future, and in order to stupidly sell more expensive after the IPO. While this pyramid grows successfully, but i always remember 2000 year, when the dot-com bubble was also inflated.
5. Market growth period. Apart from falling in 2020 year, which is due to non-economic reasons, market growth continues already 13 years. There have been longer periods in history without significant crises., but the longer the continuous growth, the more likely a new recession and cooling in the market is. On the other hand, can 2020 year to burn in stock market crises. Therefore, this point just needs to be kept in mind., because. there is a rule `` profitability in the past does not guarantee profitability in the future ''.
Here, actually, these items are written in my notebook. Let here, on Instagram, will be an extended version of & quot; will accept" crisis, to be on the alert and keep in mind, that the market can surprise you at any time.
An investment strategy should be based on, to have a plan for all scenarios. The most correct option in this case is seen in the fact, so that investments are regular. For example,, investments for a certain amount every month, wherever the market goes.
I have modernized the strategy a bit., increasing investments at that time, when the market falls. I attach by default 10 thousand rubles per month. If the market, allowable, will fall on 50%, I will invest about 100 thousand and here reserves in the form of short corporate bonds will be connected, which I will sell and buy stocks with this money.
Even more useful information about investments and finance in my Instagram – @long_term_investments . Subscribe!
