Buffett Indicator Says Stock Market Overvalued

Since we’re living in an era that looks more like 1905, there’s alot of skew and the public doesn’t get access. In the 90s, companies would IPO and we were exposed to risk and gain with small caps. Now, it’s more like the standard oil trust - big private and sovereign funds are more influential.

I think we’re entering an era where active management will become critical.

1. Your long-term investments should never be something you sell in an emergency. That’s what your 6-12 month emergency fund is for.

2. Giant tech companies like Microsoft have a highly diversified customer base. If you avoid investing in Microsoft you’re just investing in one of their customers or vendors, so if Microsoft is doing badly in a recession it’s a pretty safe bet that a whole bunch of other companies unrelated to software are doing poorly.

3. If choosing to minimize the chance of lost investment gains during a job loss means giving up long term returns by choosing less performant investment choices then you could just be making your overall probabilities worse.

4. You can’t actually assume that job cuts equal lower stock prices, they can often do the opposite. E.g., Microsoft has been having layoffs all year but their stock is up over 20% YTD.