Every now and then, investors take things way too far. Emboldened by a sustained market run, they push stock prices to huge premiums of what they are truly worth, inflating an asset bubble fated to pop, sooner or later.<\/p>\n
Some of the hallmarks of such episodes are there today: historically high stock valuations, speculative behaviour everywhere and plenty of retail investor enthusiasm.<\/p>\n
More and more reputable voices in the industry are saying the stock market is getting dangerously overheated even as economic conditions deteriorate.<\/p>\n
Where does that leave the rational investor? Backing away from the frenzy would seem the obvious answer.<\/p>\n
Problem is, irrational markets can be long-lived and fantastically lucrative. In the year that led up to the 2022 market peak, the S&P 500 index increased by 30 per cent. <\/p>\n
Twelve-month gains of 16 per cent preceded the global financial crisis. And the last year of the dot-com bubble saw U.S. stocks rise by 20 per cent.<\/p>\n
Sitting on the sidelines of a bull market is not a good way to build wealth. Now is the time for sensible adjustments rather than drastic moves.<\/p>\n
\u201cDo we think the stock market is overvalued? Absolutely. Are we selling our positions? Not at all,\u201d said Rebecca Teltscher, a portfolio manager at Newhaven Asset Management Inc. in Toronto.<\/p>\n
Let\u2019s take a closer look at a few smart ways to invest in a world gone mad.<\/p>\n
Sin a little<\/b><\/p>\n
The temptation to avoid a market crash is a powerful one.<\/p>\n
Consider the COVID-19 pandemic, which was a health crisis, financial crisis and economic crisis wrapped into one. In the moment, it felt to many like their savings could get obliterated by the mother of all stock market crashes. <\/p>\n
Those who moved into cash in early 2020 may have spared themselves from what proved to be a short but substantial sell-off. But a Vanguard study showed that about 80 per cent of these panickers would have been better off doing nothing.<\/p>\n
This is a good example of why market timing is a cardinal sin of investing. But there are times when it\u2019s okay to \u201csin a little,\u201d as billionaire quant investor Cliff Asness likes to say.<\/p>\n
That might mean shifting a bit toward stocks with relatively low valuations in a market that is heavily tilted toward growth stocks.<\/p>\n
INVESTCON 5<\/b><\/p>\n
Howard Marks is another billionaire investor whose advice carries great weight in financial circles. <\/p>\n
In his latest newsletter, Mr. Marks said it\u2019s time to move to INVESTCON 5, which is a six-point scale of investment risk similar to the military readiness system used by the Pentagon.<\/p>\n
\u201cIf you lighten up on things that appear historically expensive and switch into things that appear safer, there may be relatively little to lose from the market continuing to grind higher for a while,\u201d he wrote.<\/p>\n
Bonds are well-suited as defensive investments, Mr. Marks added.<\/p>\n
Cut back on the U.S.<\/b><\/p>\n
A purely passive index investor tracking the global market is heavily exposed to the U.S. right now. That\u2019s because American stocks account for a whopping 72 per cent of the total market capitalization of the MSCI World Index.<\/p>\n
Of course, the U.S. market itself is also highly concentrated, with the Magnificent Seven stocks comprising more than one-third the value of the S&P 500 index.<\/p>\n
A bet on global stocks, therefore, is largely a bet on Big Tech, which is sporting some historically high valuations.<\/p>\n
\u201cA smart move to make right now is to underweight U.S. stocks,\u201d said S\u00e9bastien McMahon, chief strategist at iA Investment Management in Quebec City.<\/p>\n
\u201cThat doesn\u2019t mean going to zero. But instead of having 70-per-cent U.S., maybe you can go down to 60 per cent.\u201d<\/p>\n
Shift to safer stocks<\/b><\/p>\n
Very strong companies can sometimes make for risky stocks. Nvidia Corp., the world\u2019s most valuable public company, saw its stock decline by as much as 37 per cent earlier this year. Tesla Inc.\u2019s shares dropped by as much as 54 per cent.<\/p>\n
A stable dividend-paying Canadian blue-chip trading at 18 times earnings doesn\u2019t have the same downside, Ms. Teltscher said. \u201cCan that stock decrease by 70 per cent? Not without going bankrupt.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"Every now and then, investors take things way too far. Emboldened by a sustained market run, they push…\n","protected":false},"author":2,"featured_media":72337,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[175],"tags":[4320,4309,4321,9,4302,4322,79,995,4301,4314,4315,4311,4303,4300,179,2597,18,440,4313,4307,4333,4304,4305,3428,19,17,4310,3521,3136,4323,188,4306,4328,4329,4331,4326,4330,4324,4327,430,4317,4318,790,4316,4325,4308,82,4319,4312,4222,66,4332],"class_list":{"0":"post-72336","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-markets","8":"tag-alberta","9":"tag-arts-news","10":"tag-bc","11":"tag-breaking-news","12":"tag-breaking-news-video","13":"tag-british-columbia","14":"tag-business","15":"tag-canada","16":"tag-canada-news","17":"tag-canada-sports","18":"tag-canada-sports-news","19":"tag-canada-trafficcanada-weather","20":"tag-canadian-breaking-news","21":"tag-canadian-news","22":"tag-economy","23":"tag-education","24":"tag-eire","25":"tag-environment","26":"tag-federal-government","27":"tag-foreign-news","28":"tag-globe-and-mail","29":"tag-globe-and-mail-breaking-news","30":"tag-globe-and-mail-canada-news","31":"tag-government","32":"tag-ie","33":"tag-ireland","34":"tag-life-news","35":"tag-lifestyle","36":"tag-local-news","37":"tag-manitoba","38":"tag-markets","39":"tag-national-news","40":"tag-new-brunswick","41":"tag-newfoundland-and-labrador","42":"tag-northwest-territories","43":"tag-nova-scotia","44":"tag-nunavut","45":"tag-ontario","46":"tag-pei","47":"tag-photos","48":"tag-political-news","49":"tag-political-opinion","50":"tag-politics","51":"tag-politics-news","52":"tag-quebec","53":"tag-sports-news","54":"tag-technology","55":"tag-travel","56":"tag-trudeau","57":"tag-us-news","58":"tag-world-news","59":"tag-yukon"},"share_on_mastodon":{"url":"","error":""},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/posts\/72336","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/comments?post=72336"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/posts\/72336\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/media\/72337"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/media?parent=72336"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/categories?post=72336"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/tags?post=72336"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}