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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 boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board of Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker.
He helped develop what has become known as the Volatility Index (VIX) - to this day one of the most widely used indicators worldwide. After leaving Chicago to run the futures and options division of the British banking giant Lloyd's TSB, Shah moved up to Roosevelt & Cross Inc., an old-line New York boutique firm. There he originated and ran a packaged fixed-income trading desk, and established that company's "listed" and OTC trading desks.
Shah founded a second hedge fund in 1999, which he ran until 2003.
Shah's vast network of contacts includes the biggest players on Wall Street and in international finance. These contacts give him the real story - when others only get what the investment banks want them to see.
Today, as editor of 10X Trader, Shah presents his legion of subscribers with the chance to earn ten times their money on trade after trade.
Shah is also the proud founding editor of The Money Zone, where after eight years of development and 11 years of backtesting he has found the edge over stocks, giving his members the opportunity to rake in potential double, triple, or even quadruple-digit profits weekly with just a few quick steps.
Shah is a frequent guest on CNBC, Forbes, and Marketwatch, and you can catch him every week on Fox Business's "Varney & Co."
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.