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Investing should be easy. It's not.
Most investors don't invest in what they know and don't know how to invest in the unknowns that scare them.
In 2007, nearly two out of three American adults (about 65%) invested in the stock market. Now, according to a 2016 Gallup poll, only 52% say they have money in the stock market. That matches the lowest rate in Gallup's 19 years of tracking ownership trends.
In recent years, American investors have been through the 2008 Financial Crisis and the subsequent Great Recession, then the May 2010 flash crash, the summer of 2015's 2,000-point drop, and another 2,000-point drop in January 2016.
All this wasn't enough to scare investors out of the market – the Dow's up more than 210% since its 2009 bear market lows.
But now we're worried about Trump tweets, political fireworks, a divided America, and global uncertainties.
The truth is, there's always some unknown out in the market to be scared of. But that doesn't stop stocks from rallying. That's why you need to stay in the game.
What's the Market's True Present Value?
Fundamentally, the market is strong. That's because, in the biggest picture possible, there are fewer and fewer stocks to own while more and more capital is created every day, a lot of it chasing that diminishing pool of equities.
Between buybacks, mergers and acquisitions, leveraged buyouts, and the lack of new companies coming to market, there are one-third fewer companies traded on U.S. exchanges than there were in 1999.
Considering tepid global growth, central bank money-printing, and rising stocks (which smart investors use to leverage themselves by buying more shares on margin against their appreciating portfolios), there's been a lot of capital created that's gone into the stock market.
Of course, low interest rates help the stock market enormously. With fixed-income yields so low, investors seek greater returns. Low rates also make it cheap to borrow to buy back shares, to finance takeovers, and leverage up portfolio holdings with margin.
More capital chasing fewer shares creates a giant "bid" under the market.
The question to ask now is, what's the "present value" of the market?
Has it gotten ahead of itself? If it dips, will the big-picture fundamental bid under the market stabilize it and push it back up? Are there other potential "bids" under the market, capable of lifting stocks? What are the unknowns, and how could they impact the markets?
There's no question that – in terms of historical price/earnings ratios – stocks are very expensive.
Last week, I showed you how expensive stocks are. By one measure (price to earnings), the low end has them at about 35% overpriced, while the high end measures them at almost 90% overpriced.
Most recently, analysts are expecting earnings to start improving after six quarters of decline. Stocks alr…
About the Author
Shah Gilani is the Event Trading Specialist for Money Map Press. He provides specific trading recommendations in Capital Wave Forecast, where he predicts gigantic "waves" of money forming and shows you how to play them for the biggest gains. In Zenith Trading Circle Shah reveals the worst companies in the markets - right from his coveted Bankruptcy Almanac - and how readers can trade them over and over again for huge gains. He also writes our most talked-about publication, Wall Street Insights & Indictments, where he reveals how Wall Street's high-stakes game is really played.