The US stock market, as a whole, is more than 60% overvalued and is reaching levels that
we've only seen one time in recorded history. In this video, we're going to dive into
this chart. I'm going to explain to you exactly what it's measuring, why it's
important, and what it means for the future of your stock market investments. Coming up…
Hey there! Welcome, it's good to see you. If this is our first time meeting, my name
is Stephen Spicer, and it's my goal to help you build your rapidly-growing, highly-diversified
net worth, one video at a time. This video, in particular, is part of a larger mini-series
devoted to analyzing and really understanding the many signs of an imminent crash and then
ultimately using this knowledge to help you prepare your portfolio - crash or no. To start
from the beginning of the series, click on the link right at the top of the description
below. And stick around until the end, I've created a resource for you that will help
you Crash-Proof your portfolio.
So, the chart you saw earlier is tracking the Q Ratio of the S&P 500. Now, if you know
what the Q Ratio is, you're welcome to go down to the description right now and find
the timestamps to jump ahead of this explanation.
The Q Ratio was developed by Nobel Laureate, James Tobin. It can be used to estimate the
fair value of an individual stock or markets, on the whole. It's a pretty simple, logical
concept, but can be difficult to calculate for entire markets. For an individual company,
the Q Ratio is the company's total price (or market capitalization) divided by its
replacement cost - in other words, its net worth - its assets minus its liabilities - what
it would cost you to simply… replace the business.
Logically, you might think that a 1-to-1 ratio would constitute a fair value. For example,
if you had a company with a $100MM market cap and it would cost $100MM to replace it
or to start an identical company, the Q Ratio for that company would be 1. If the market
cap of that same company rose to $150MM, the ratio would now be 1.5 and might be considered
overvalued since, in theory, you could replace it for a mere $100MM or ⅔ its current price.
On the other hand, if the market cap were to drop to $50MM, the stock might be considered
undervalued as it would cost twice as much to replace it.
I hope that makes sense. If you now have a better understanding now of what the Q Ratio
is and how to use it, let me know by clicking that like button. I really appreciate it.
Now, you can take that concept - that we just applied to one company - and apply it to entire
markets. And, as I said, that's exactly what this chart is: the Q Ratio of the S&P
500 since 1900. So, today, if you were to buy into the S&P 500 as a whole (through an
ETF, for example, an extremely common practice without any additional consideration whatsoever...),
for every $1T of net worth - what you could essentially pay to replace the companies - for
every $1T, you're paying $1.17T - that's essentially what our current 1.17 Q Ratio
is telling us.
Now, even though a 1-to-1 ratio may seem like a fair value, historically, that's not the
case. Since 1900, the average Q Ratio is about 0.69. That means that right now, the market
is 69% above the historical mean, a level that has only been surpassed one time in history
- immediately preceding the Tech Bubble.
Let's run through some data-driven hypotheticals: If the Q Ratio were to revert back to its
historical mean, from today's prices, that would constitute a more than 40% decline in
the overarching value of the S&P 500. A correction to the post-2008 low would mean a 54% drop.
And, just for fun, a return to the 1982 historical-low of 0.28 would result in a cataclysmic 76%
crash.
And, I always like to note that just because that is the historical low, that by no means
guarantees that that's the lowest it could possibly go… only time can tell us that.
Of course, periods of over-valuation can last for years, so the take away here should not
be to sell out of all your stocks and definitely NOT to short the market. This is a long-term
indicator - you just shouldn't be surprised when the market finally does correct in the
near future.
Also, if this were an isolated indicator - if this were the only sign of a coming crash
- I wouldn't give it near as much credence. But it's not. There are so many more alarm
bells going off, that you should at least be aware of. And that's the whole point
of this mini-series. So, don't forget to click the link in the description to see the
whole picture and learn how you can prepare your portfolio, whether the crash comes five
days from now or five years from now.
That's my ultimate goal with this: to help you crash-proof your assets - your life savings.
In fact, I created a Crash-Proof Resource Guide and Checklist that you can download
at CrashProofGuide.com. It'll be a living/growing resource that you can keep coming back to
as you continue to strengthen different areas of your portfolio and as we continue to find
more resources to help you along the way. Again, go to CrashProofGuide.com, if you're
interested and haven't gotten yours already.
Now, I have an honest question for you (I want you to really think about this): if you
were looking for a company to buy today - like an actual company, the whole thing, not just
a share - as a ratio of replacement cost (like the Q Ratio) what is the max you'd be willing
to pay for a company and still feel like you got a good deal? Would you be willing to pay
more than 1-to-1? Let's talk about it in the comments.
And, if you learned something today, leave me a like and share this with some friends
who could stand to benefit from this critical knowledge.
Hopefully, you can see the value that comes with being a member of this community, so
if you haven't already, don't forget to subscribe and click the bell.
I'll see you in the next one! Take care!
Không có nhận xét nào:
Đăng nhận xét