Stock markets: This is how high the fall can be

The US stock markets are at an all-time high. But what “ideal world” is already priced in? And how do you behave as a rational investor after the strong rises on the stock markets? Still buying now?

Florian Homm shows (german video) the height of Wall Street’s fall using the Buffett indicator (relation of market capitalisation of US stock markets to US GDP). Currently, this ratio is 145% (market capitalisation in relation to US GDP). This is almost the same as before the dotcom bubble burst.

The second long-term assessment basis is the Shiller P/E ratio (Shiller PE ratio; valuation of a share in relation to profit over a period of ten years and adjusted for inflation). It is currently 30 (the historical average, however, is only 16).

The third hot parameter is the Q ratio. Here the market capitalization of a company is divided by the costs it would have if it had to acquire its assets.

From these three parameters, Florian Homm concludes: the fall of the stock markets in the USA is enormous. Those who still buy now simply have a bad risk-reward ratio in the medium, but above all in the long term! Does “TINA” (there is no alternative) really still apply at such price levels?

Foto: Avarice (2012), by Jesus Solana / Wikipedia (CC BY 2.0)
Detail of original photo
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