Those who bought NASDAQ in 2000 took 15 YEARS just to recoup their capital.
The indicators are flashing RED today. I'll show you four that you NEED to watch:
1️⃣ CAPE RATIO (Shiller P/E)
Today: 35x Historical average: 17x Signal: 🔴 DANGER
Measures price vs. adjusted earnings over the past 10 years. Above 30 = historically WEAK future returns. Every time it has gone above 30, the S&P has fallen 30%+ in the following years.
2️⃣ BUFFETT INDICATOR
Today: 200% of GDP Historical average: 85% Signal: 🔴 EXTREME
Warren Buffett calls it the "best single indicator." Total Market Cap / GDP > 150% = "playing with fire." In 2000, it was at 140%. Today? 200%.
3️⃣ MARGIN DEBT
Today: $935 billion (RECORD) Signal: 🔴 EUPHORIA
Investors are so confident they BORROW to buy more. Every record high = crash within 12-18 months. 2000 ✓ 2007 ✓ 2021 ✓ 2024?
4️⃣ EQUITY RISK PREMIUM
Today: 3.5% Average: 5.5% Signal: 🟡 ALERT
Difference between expected returns on stocks vs. bonds. Lower premium = lower compensation for risk. Translation: you earn a LITTLE EXTRA for taking a LOT MORE risk.
📊 HISTORICAL FACTS:
Those who bought the S&P 500 with a CAPE > 30: • Average 10-year return: 3% per year • Chance of losing money: 40%
Those who bought with a CAPE < 15: • Average 10-year return: 15% per year • Chance of losing money: 0%
Yeah the market is extremely expensive from a value investor standpoint but one can argue the tech boom destroyed value investors over the last 15-20 years. The market is making a huge bet AI will do the same