Questions from Investors — Is the Market Overvalued?

Q:  Crista, how do you explain why the market is doing well when so many people believe economic collapse is possible any day?

A:  First of all, individual investors really aren’t in the market. And markets only max out after individual investors are “all in”.  Just a few short months ago (Nov.?) we had record stock mutual fund OUTFLOWS.  Individual investors are famous for being wrong.  That’s why they buy high and sell low — exactly opposite of what they ought to be doing.

Here’s how you know when everyone’s in the market:  they talk about their stock investments at work, at church, and in the supermarket.  That’s not happening right now, and it takes a long bull market before it does happen.  I remember it very, very clearly just prior to the 1987 Crash.  And in the late 2000’s, when little old ladies — literally — were transferring their accounts out of Morgan Stanley because I wouldn’t give them aggressive growth mutual funds.  (It’s not that old people can’t handle stocks in theory…it’s just that these particular ladies were “risk averse”.  I could have been sued if I’d done what they asked!)

Second, on a balance sheet valuation level (PE, EPS, etc.), there are so many attractive companies that I can’t write about them fast enough. Literally, I always have a list of about 30 great investments waiting for me to choose from next, and that’s on top of the ones I’m continuing to write about.

Here’s an example: I wrote about Delta Air Lines today.  The projected earnings per share growth rates for the next three years are 39%, 17% and 12%.  The PE is 6.5.  (And if those numbers don’t speak to you, you don’t belong in individual stocks, because you are completely winging it.)

Third, stock charts are very, very reasonable. There is no shortage of stocks in good companies which go up, consolidate, go up, consolidate, etc.  So unless the Obama administration does something unprecedented, all systems are go in the stock market.

I recently cashed in all my foreign funds and bond funds, and I’m holding stocks and cash. I’m very experienced at this, and I’m always looking to grow capital while minimizing risk. That said, I’m extremely bullish on the U.S. stock market at this time.

I wouldn’t touch bonds with a ten foot pole.

Crista Huff


Goodfellow LLC


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