Stock Market Bubble - Where to Invest?
Stocks are overpriced $SPX500 , cash is trash, bonds are garbage, gold $GOLD is risky. So what should we do? short everything?
Why not invest in stocks? they are going back to all time high. if stocks are going up, it may seem a good idea to buy. Actually, we need to consider valuations. The Buffett indicator is over 148%, that is, the total market cap of the US Stock market is 48% times bigger than the US GDP. It is at record high. Maybe that's one of the reasons why Warren Buffett has so much in cash and didn't buy stocks.
Stocks are going up because the Fed is printing money by quantitative easing. The Fed is buying bonds, forcing investors looking for higher returns in stocks. What happens when the Federal Reserve System leaves? everything crashes. Even if stocks may be going to all time high, if there's inflation, it won't be a good idea to own stocks.
Why not cash like Warren Buffett? Berkshire Hathaway is too big and Warren Buffett cannot find good investments and that's why he needs to be in cash. But for the average retail investor, we need to listen to Ray Dalio, cash is trash. Bonds are also not such a good idea since the yield on all the treasury bonds are below inflation rate. Corporate bonds are risky. Companies are over leveraged and there's a bubble in the corporate bond market.
Buy Gold? The problem with gold, silver or even Bitcoin $BTC , which Paul Tudor Jones says you need to have about 1% in your portfolio is that they are volatile and are not value producing assets. I prefer investing in gold or silver miners to have exposure to these metals. Base metal miners such as Copper, Lithium, Nickel is also a good place to invest since there will be higher demand for these metals because of electric vehicles and renewable energies.
Another alternative is to diversify your portfolio globally.
The best investments right now, however, are in workouts. Workouts according to Warren Buffett in his 1961 letter to his partnership. He said that workouts are any business where there's going to be corporate actions such as mergers, spinoff, liquidation, restructuring. For example, I have Caesars Entertainment and Fitbit as arbitrage deals in my portfolio. Merger arbitrage stocks are usually less volatile than other investments and are a good alternative to cash.
Another thing that you can do is maybe short stocks. This is something that I personally won't do since I don't know how. This is outside my circle of competence, so are options.
I know that it is tempting to take more risk, to do things outside your circle of competence but you don't need to. Warren Buffett has beaten the market over the last 25% but during the dotcom bubble, he was losing money. That doesn't make him a bad investor. Sometimes, it is better to stay on the sideline to wait for greater opportunities.
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