Tag Archives: long-term thinking

What is the “best” way to Value the Stock Market? 

Why value the stock market? 

As an investor its often tempting to attempt to predict the future. The incurable human tendency to back decisions with emotion combined with the impossibility of fully anticipating the future makes this exercise laughable. 

However, with a proper context of “value”, investors in aggregate have always determined market prices that, long-term, move in tandem with actual value. This idea is known as “market efficiency”. 

While markets are either nearly entirely or mostly efficient, there are always opportunities to find value and outperform. Bust asking simply if the stock market is overvalued is a bit complicated. 

What do we mean by “stock market”?

The entire universe of stocks is encompassed by a diverse source of demographics, industries, and legal systems. In 2023 the U.S. market is by far the largest equity market and certainly most investors both in the U.S. and globally would consider this market a key representative of stocks generally. 

But even within the U.S. there are small-caps, large-caps, value, growth and even a breakdown between stock sectors. As far as this examination will go its entirely appropriate to look at the stock market through the most widely regarded indexes: the S&P 500. 

Can we accurately measure stock market value? 

Measuring the value of anything can be difficult, especially something as large and complex as the S&P 500. However, based on their correlation to future returns, 6 indicators have actually be reliable in the past. 

Ways of measuring the stock market

Advisor Perspectives tracks four out of the six indicators monthly. On their site they chose to average the four and compare them to historical returns. This format is useful because it illustrates just how risky or cheap the stock market is in any given month. I check their page frequently and I encourage anyone interested in market valuation to check it out

The four listed on their site are: Crestmont Research P/E ratioCyclical P/E ratiothe Q ratio and the current deviation from the market’s regression trendline. In April 2023 the average of the four sits at nearly 100% overvalued. For comparison this is somewhere close to the value the S&P500 traded at during the 90’s dotcom boom before 2000. 

While these four give a useful datapoint as to the markets value, there are two others that I believe are just as, if not more indicative long-term. These two are the market to GDP ratio(also called the Buffet Indicator) along with the household equity allocation

The market to GDP ratio, popularized by Warren Buffet, has long served as a crude assessment of stock market value. It compares how the value of U.S. equities weigh against the size of the economy. Currently the buffet indicator is somewhere north of 150% which is overvalued. In context this level is as high as it was in the early 70’s (which saw lower subsequent 10-year returns) and the mid 90’s (which led to the dot com crash of 2000). 

All of this does not guarantee that the stock market will crash this year. In fact, the stock market could continue to rise as it did in the late 90’s even past the point at which the market is currently valued. Predicting the future can be difficult but it is useful to have some context into where U.S. stocks currently sit. 

Lastly, a 6th indicator I have used is the household equity allocation. This indicator uses information provided by the FED to measure the average current percentage of equities held by investors in their portfolio.

The reason why this is useful is that it gives crucial insight into the supply-demand reality of how much capital is available for investors to move from other assets into stocks. Logically the higher the percent of assets invested in equities, the lower potential future influx of capital into equities. 

The latest reading from the FED shows that around 45% of assets are invested in equities. This is one of the highest we’ve ever seen in recent decades. In fact there have only been two peaks with a higher percent of assets in equites for any of the last 70 years. Those two times were the stock peak of 2000 and the peak in December 2021. This number is sitting at around where investors were in 1997 or 2018. 

An alternative question

As I discussed at the beginning, there is always an inherent risk of A) miscalculating stock market value and B) benefiting from this knowledge. It is both possible to inaccurately calculate the frothiness of the market and at the same time over (or under) react the forementioned information. As an example, an informed investor in 1995 might have looked at the relatively quick rise in stock prices, compared them to historical prices, and decided to step out of the market. Anyone familiar with what followed knows that stocks were poised for one of their largest bull runs in market history. 

Instead of looking at stocks through the lens of “cheap” verse “expensive” a more beneficial way of viewing the market is to ask where the risk/reward tradeoff lies. More precisely, there is more to risk/reward than simply value. There are four total factors that should influence an investors decision to decide whether to stay the course. Not only does “value” in the historical sense matter, but also the investors time horizon, alternative options, and the current trend of the market. 

Value can give us an understanding of the long-term return prospects of the market or a particular stock, but value won’t tell us whether the price will go up in the next week, month or even several years. However, for long-term investors who view the market in terms of decades, not years or months, value is ultimately all that matters. 

Time horizon matters because for those with a shorter time frame(like those nearing retirement) cannot afford to wait out the long-term market cycle in the hopes of a rebound. Younger investors who are willing and emotionally capable of waiting out bear markets should not try to time the market. 

A natural part of the market cycle is an ebb and flow of various stock market segments going from overperformance to underperformance and back again. Not only do stocks work in this way, but all other asset classes also have segments within them that vary in performance. Weighing your stock alternatives may not only be prudent within the stock universe, but among all asset classes. 

Lastly, trend watching, which has a bad reputation in certain investment circles, can sometimes add a valuable layer of actionable insight. Historically when the stock market is above its 200-day trend line stocks have performed better with lower volatility. Gauging the trending risk or opportunity in an asset or whole asset classes may help improve outcomes that are not available to purely value investors. 

Back to the question: What’s the best way to value the stock market?

There is no “right” way to value the stock market. And in fact, as we have discussed, value is not the only factor that should determine our current stance on equities. This is especially true for the young investor. For those of us who are not in a particular need of capital in the next 15-20 years, staying put in the market may be the most prudent decision. After all, we have no way of knowing if stocks are in for another rip higher like they did in the late 90’s. 

On the other hand, for those who take a more active investment stance or those who may need their money sooner, reducing exposure to equities may serve as an appropriate risk mitigation technique. 

Warren Buffet: How a Sixteen Year Old Turned $5,000 into almost $1B

Almost everyone has at some point heard of the famous figure Warren Buffet. However did you know that Warren’s success didn’t just start as an investor. Mr. Buffet actually began making strides towards his massive fortune in his high school years.

In high school he was making more than a lot of his teachers by running a pinball machine business and delivering papers. At the age of sixteen he had amassed five grand. $5,000 at his age would be the equivalent of around $60,000 today! He was just sixteen.

While most of us can’t redo our high school years, childhood or even college experience, we can chose to adapt many of the principles that Warren did in his younger years and implement them long term.

There are three things that we can use from Warren’s life to make changes today:

  1. Win Friends and Influence People

Warren implemented (not just read) this book. Simply reading it and taking daily action to change behavior and habits can go a long way in making your life a more successful one.

2. Understand the time value of money

Warren, even in his teen years, didn’t squander his cash on toys, games or nice clothes. He understood that a dollar today could be worth $30, $100 or (in his case) $1000 in the future.

3. Be entrepreneurial

This doesn’t mean you need to start a company or quit your day job. Just like Warren, you can figure out creative ways to make side money. If Warren Buffet at the ages of 13, 14 and 15 could figure out how to make side money, then you, as an adult can figure out how to do the same.


Warren Buffet is extraordinarily rich. I can’t tell you that you’ll be as rich as him. I can’t even guarantee that you’ll have $1M. But I can guarantee that you’ll grow as a person and become richer then you are now if you implement these three steps.

Try them, you may find that they actually work.

Three Ways You can Make Side Money This Year

Most folks in the U.S. struggle with money. Whether that means they don’t know what to do, or they don’t have the discipline to do what they know. Whatever the reason, there’s no doubt that often an extra flow of income can help bridge the gap between making your goals and falling short.

The following are three ideas of ways you can make money this year and every year after:

Plasma Donation

This is often one of the toughest ways to make money, especially for those who faint a the sight of a needle. I know for me personally I used to literally walk out of movies that had needle-type medical scenes.

However this past winter I have been overcoming my fear and at the same time making decent money! I have made about $300 in the past month with limited time commitment as well as gaining confidence in myself. (Not to mention plasma donation is literally saving lives.)

I have found you can make about $40 to $45 per day on average for just an hour or two, depending on where you go and the bonuses they provide.

Online Ads

If you have a blog, youtube channel, or some other form of online website, you are able to add ads and make the site profitable. This obviously doesn’t happen over night. But given some time, you will be able to make some extra cash.

I have recently set up an Adsense account and am working on creating an extra income stream from writing.

Online Resale

If you’ve ever gone to a thrift store, or bought something on craigslist you know that it’s possible to buy online and resell for a profit. While there are no guarantees, it’s definitely possible to develop a niche and eventually make decent money with limited time commitment.


There are no clear answers to the income question. Ultimately income alone won’t improve your finances. Managing the money you have is a first step. But for many people extra income is a massive boost. For those people this might be the push that you need.

3 Things Young Adults can do to Prepare for Their Future

As millions of young adults enter the workforce, finish education, and begin a life of financial responsibility, there are many of us who have a lot of uncertainty for the future.

The following are three key things to anticipate for the future:

An Older, More Diverse Population

Let’s face it, as time progresses there will be more and more old folks in the economy. This isn’t necessarily a bad thing (after all, someday we’ll be those old folks), but this is just one more thing to anticipate in the future.

In addition, there will likely be more ethnical and gender diversity. More and more women will enter the workforce, as the population of African Americans, Hispanics and Asians increases in the U.S..

These are all positive changes. Not only will we be experiencing more diversity of creed, religion, nationality and ethnicity, but we will also be seeing more and more women in the workforce. This is all at a time when we are living longer and longer.

More Technology and Automation

Unless, in the unfortunate event the world enters WWIII, we will likely see continued progression of technology both in terms of software, like AI and automation and in terms of machines and physical advancement.

Key areas to keep and eye on are in the medical field, biotech, vehicle automation and AI. These massive changes will likely lead to an ever-evolving need for labor. Automation will likely destroy certain jobs forever, while technology will create new demand and new industries.

Potentially Higher Taxes

At this moment taxes are historically low. After the tax cut of 2018 there are many economists and financial advisors anticipating higher taxes in the future to cover our increasing deficit. While there is no crystal ball that can see the future, we do know that it’s unlikely for rates to stay this low forever.

That said, it would be prudent to plan for this by utilizing tax-advantaged accounts like Roth IRA’s and Roth 401K’s.


Preparing for the future doesn’t have to involve knowing all the details. While you don’t have to know everything, you should prepare for what’s likely to happen.

The advice contained in this blog is meant to be taken at the reader’s discernment. Talk to your financial planner to see how the advice may or may not apply to you. Ultimately you are fully responsible for your finances so make sure you have someone who is willing to walk with you on your journey.

Getting on the Grid: The Importance of Communication

We all like to think, especially here in the U.S., that we’re capable of doing nearly all of the things we set or minds to– and doing them well.

While it’s certainly true that almost anything we set our minds to can be done well, the reality is that we have to pick a few things to become great at. Everything else has to either be left in a mediocre/neutral/average state, delegated or abandoned.

While this might sound like a negative, pessimistic view, it’s actually the truth. There is only so much energy, time and resources in our limited life to do everything we set out to do.

With that in mind, we can understand that facilitating our strengths and weaknesses will ultimately determine our success in life. A big part of this is delegation and communication.

Communication, at it’s simplest level, is just transferring knowledge or feelings from one party to another. And the main way this happens is through connection–through authentic mutual understanding.

Your ability to connect, and therefore communicate, plays a massive role of where you’ll be in 20 years. Take time to focus on it, focus on your strengths, and focus on others.

What is Personal Finance

What is personal finance? And Why does it matter?

Those are two very interesting and important questions to ask as one either begins their life as adults, or being asking questions they’ve never approached before. For the past five months or so, this blog has predominantly been centered around personal finance, both the investing side, as well as the money management side.

I realized that before I continue this journey with all of you, I need to take a moment to explain what Personal finance actually is. Personal finance clearly deals with how individuals manage their money.

While the topic briefly touches on the analysis and performance of businesses and organizations for investment purposes, it predominantly centers around the individuals’ approach to managing each dollar in and each dollar out.

Personal finance answers questions like:

What are my financial goals? What use do I have for money? What should my investment approach be? How much do I need to be saving? How large should my house purchase be? Should I buy this trinket or save the money?

Many of these questions are simply answered through quiet reflection or by asking your friends and family for feedback. However, some of these more complex questions like how to invest your money, or how to craft a financial plan can often be better answered by a financial advisor.

Why does personal finance matter? 

There are three basic reasons why you should pay attention to your finances:

1. Money has impact

2. Money can be complicated

3. Money is emotional

While we of course don’t have the time to go into the details of Personal Finance in one blog post, I hope this gives you a great picture of what this topic is all about.

Meeting A Different Donald: Real Estate and Ways to Invest

Most people, if not almost everyone, has heard of Donald Trump. As the 45th president of the United States, he has been a real estate developer and the previous host of the Apprentice show.

But have you heard of Donald Bren? He grew up as the son of two relatively successful parents. His father was a movie producer and real estate developer like him. His mother was a civic leader. After majoring in Economics and Business a the University of Washington, Bren attempted at Skiing in the Olympics but had to quit due to an injury. In addition, Bren became an Officer in the U.S. marine Corps.

After that he took a $10,000 loan out in 1958, he began developing and flipping homes until he had built up a business which he sold. He started another one, sold it, and then took the proceeds to buy a third stake in the Irvine Company. He eventually bought the outstanding ownership and now has a net worth of over $16 Billion.

Donald Bren took one path to real estate. But there are others. I want to briefly cover the three main ways you can approach real estate investing.

1. Direct Investment

A direct investment in real estate, like what Donald Bren did, involves purchasing property either directly or through a business entity. Either you focus on property appreciation, resale, or cashflow. With these metrics in mind, you seek to partner with others to produce above-average returns over the long-term. This is what Bren did.

2. Indirect Investment

The second, more modern way to invest in real estate is less direct. With an indirect investment you buy a company that invests in real estate. Usually this is either a REIT (real estate investment trust) or some sort of real estate syndication.

3. Hybrid

The last option is some sort of mix. It involves partnering with others so that you own the real estate but you don’t necessarily control management of it directly. An example might be a partnership between a handful of people in which you own, say, 20% of the upfront investment. You put a shared investment with say, 2 other people. One person is in charge of management, and the other two people sit passively by but provide the capital.

A hybrid between direct and indirect is usually less risky but also less financially rewarding if your investment becomes a success.


Part of investing in real estate is understanding yourself. How much involvement do you want? Often the answer is not much, but for those adventurous few, you never know, you might become the next Donald Bren.

Acquiring a Domicile: How to Rent an Apartment

Most people have or will rent at some point in their life. What often comes up is concern about rising prices or lack of adequate amenities. These issues will always be a concern. However the following steps will help prepare you for a move into someone else’s rental.

1. Determine your Renting Criteria

As soon as you decide that you want to rent, you need to determine what you’re after. What kind of budget are you looking at? What square footage? What types of Amenities do you want? What are your needs verse what are your wants? In which location specifically does this rental need to be?

Answering these questions will give clarity, allowing you to start the next step…

2. Narrow Search to 10 Rentals

As soon as you’ve determined your renting criteria you will be ready to begin screening. Similar to how a landlord screens potential tenants, you will be screen potential landlords. Find ten places that most closely meet your criteria.

Some places you can find rentals include:

Pad Mapper, HotPads, Lovely, Trulia and Walkscore

3. Visit Your List and Come Prepared

With your list in mind you can begin visiting each one. To come prepared, bring a checkbook, wallet, or some means of payment in case they want to charge you for an application fee. Also bring proof of income such as a pay stub or other documentation. Lastly, you’re going to want a photo ID.

At this point you should be well on your way to both knowing which locations fit your needs, and entering yourself into the landlords application process. Assuming you meet the rental criteria, you will probably get one of your applications responded to within a week or to.

You’re on your way! I hope this helps you on your rental journey.

Dollar-Cost Average or Lump Sum into the Market?

Dollar-Cost Averaging is the process of purchasing securities over an extended period of time with the same dollar amount each time. Lump Sum investing on the other hand, involves just putting all your money into the market at once.

For example if you’re wanting to invest $100,000 should you put it all in the market all at once or over a few months? Many people might suggest putting it in over a period of time. However my suggestion is that for most cases, the opposite is actually the wisest move. Let me explain.

If you were to run with the $100,000 example, a simple dollar cost average might look like putting $5,000 in the market for 20 months. The other scenario is just putting the $100,000 in right now.

In most cases putting everything in is a better move because on average, the market goes up most of the time. So if you dollar cost average, you’d, on average, be missing out on the growth by keeping your money out of the market.

In the smaller percentage of times that the market goes down directly following investment, then dollar-cost averaging can make sense. For example if the market has been Bullish for many years with PE ratios climbing, looking at dollar-cost averaging can make sense.

Before I finish, please click here to take a look at a blog page that covers many investment topics. He has a post from early this year that covers this topic concisely: Exploring Dollar Cost Averaging Verses Other Strategies

Thanks, hope you have a great day.

Becoming the Squirrel of Personal Finance: 4 Places to Stash Your Cash

Most folks around the world understand the concept of saving more; you can only increase savings when you either increase income or decrease spending. However if instead of investing, what if one were to put the money into savings? Where should they put it? That’s what I’d like to explore.

When considering where to put your savings there are two main factors: Risk of Inflation, and Risk of the Need for Capital.

Risk of Inflation:

When you put money into savings there’s not really a real risk of losing your money to a drop in the stock market. That’s a good thing. But the risky part is that with slower interest and growth on your money, you’ll have a harder time keeping up with inflation. Often the savings interest won’t even be enough to cover the different.

Therefore with saving there is always a risk your purchasing power can do down.

Risk of the Need for Capital:

What if you put money in a CD (Certificate of Deposit) and find out a few days later that you need the money for an emergency?

First, at least some of your money should have been in a liquid asset for emergencies. But secondly, if you have to take the money out, a CD will usually penalize you. So you should always be aware of the chance you’ll need the money and what you’ll do if you do.

With those to risks in mind, the need for capital and inflation, let’s explore the options for saving:

Conventional Saving Accounts

These usually command the lowest interest rates because of the relative liquidity of funds.

Online Savings Accounts

These are online accounts that you set up in which you usually receive higher rates of interest because there isn’t any brick and mortar building to maintain.

Certificates of Deposit

These are the best for funds you’re sure you won’t need for a short period of time. For example if you know you’re going to purchase a car in 3.5 months, then maybe taking out a 3 month certificate of deposit isn’t a bad idea if it gives you are larger return of interest.


Decide your reason for saving and how much liquidity you’ll need. If you can stomach tying up your money for months or even a year at a time, maybe a T-Bill or CD is worth it. Otherwise, consider a regular bank account or Money Market.