Cash is trash, so said Ray Dalio at the World Economic Forum. This is the exact opposite of what we always hear which is Cash Is King. What exactly is he saying? I will leave you with this video to understand a bit more about what he means.
As explained in the video, if you are holding cash and not investing it in any asset class like stocks, properties, bonds, gold etc, the cash’s value will become diminished and smaller and smaller over time.
However, as US stock market has run up so high and the various indexes like S&P 500, Dow Jones have reached record highs, is it still wise to invest in the stock market at this point when you are yet vested?
Let us look at the S&P 500. This has gone up by 353% since the last crash in 2009 and this bull cycle seems to be still full of steam. Fundamentally, appreciation in stock prices should be in line with earnings growth of businesses. The PE ratio of S&P 500 is 25 while the Shiller PE is 31.77, I think we have conclude that the valuation is rich even if you are very bullish about the market.
You can still find some individual stocks which are still fairly valued or undervalued, but you have to look harder now. We studied Apple, Alibaba and Facebook before, the prices of these wonderful companies have all appreciated a lot over the last few months, especially for Apple where I personally think it is way overvalued. This does not mean that I am advising you to short Apple stock as it is quite difficult to profit from a short strategy. Stock prices move up and down and as value investors, we exercise discipline and patience and pounce on opportunities when they arise while we stay on the sidelines and do nothing if the market is too expensive.
Warren Buffett is sitting on over $100 billion of cash, I guess he is also waiting.
Stock market valuations of a few countries like Singapore, China and Hong Kong are relatively lower and you might want to look there for opportunities too.
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At Journey With Money, we are practitioners of Value Investing for Singapore and US stocks. We are passionate about sharing our Stock Investment knowledge and experience but the materials we present do not constitute stock recommendations and readers are urged to do their own due diligence for any investment decisions.
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