Is The American Stock Market Overvalued and in a Bubble?

Can any say "Housing Bubble?" Sure you can.  Any American stock market investor, like most of the U.S. population has a short memory when it comes to bad things. Past catastrophes and the housing bubble bursting set off a chain reaction of bad things that we as a nation are still trying to dig out from under.  We’re an optimistic group, after all, so when it comes to common investment risks, investors may wish to find income producing assets in extremely small niche stocks, rather than the S&P.

Almost everyone to whom I pay attention say we’re headed for a fall, but it depends on a number of elements to align.  Bernanke’s asset bubble, as far as both he and Janet Yellen are concerned, is that over valuation is nothing to worry about.  Economic easing by printing money has caused stock prices to rise along with their "value" and corporate bottom lines. Stock prices, real estate and precious metals all rose in 2012 and most of 2013, with gold and silver in a downward slide these past few weeks.  So moving your money there may not meet your goals.

Forbes’ Jesse Columbo believes strongly about the market valuation beyond reasonable back in December, 2013,  Thomas H. Kee Jr. of Stock Traders Daily stated just yesterday the swings in the market this past week call for strict focus, and has been shouting from the roof tops since November, 2013 , that the stock market is way overvalued.  David Kostin of Goldman Sachs, as late as yesterday said there is no rationality to the overvaluation of the market.

Warren Buffet, perhaps the greatest investor in the world – ever, has felt negatively about the value of the American stock market since November, and his position hasn't changed as far as I know.
Here’s his take on how to value the markets. In 1999, and again in 2001, in an interview with Carol Loomis of Fortune:

"The market value of all publicly traded securities as a percentage of the country's business -- that is, as a percentage of GNP. The ratio has certain limitations in telling you what you need to know. Still, it is probably the best single measure of where valuations stand at any given moment."

At a ratio of 70 – 80%, Buffet feels confident the market is doing fine, but heading nearer to 200% is playing with fire.  The Buffet Ratio is currently standing at 134%.  Smell anything smoldering?

The one positive person going on record of which I am aware is Kiplinger’s Anne Kates Smith . The view she sees is continued growth in the market, leaving he bears wanting.

Simply put, the real answer to the question is the American stock market overvalued is "it depends on whom you ask."  Let’s face it, people who are in the market have got to be asking themselves when the ride will end, and nearly no one wants the uptick to stop ticking up. With that being said, people looking for good investments should perhaps begin to look somewhere toward individual under-performing assets. Bubbles burst, don’t they?  Don’t let me sway your opinion.  Think about what your goals are and to what level risk you are willing to sustain. But, if you ask me, the bull can’t run forever.

Recent Survey Says Traditional Investment Portfolios Are Dead

The Natixis Global Asset Management Global Financial Advisor Survey was conducted by CoreData Research in August and September 2013 and included 1,300 advisors worldwide. The report concluded that traditional investment portfolios are not what they used to be and because of this, an increasing number of investors are turning to the alternative asset class. Much of blame for this continuing disappointment can be attributed to the current state of the global economy, and its ongoing influence on stocks, bonds and real estate. The survey also revealed that approximately 70 percent of the advisers asked, reported that traditional portfolio diversification techniques must be replaced with new approaches. This figure is way up from a year ago (2012), when less than half (46 percent) where in favor of investing money in alternative investments.

Furthermore, the president and CEO of Natixis, David Giunta, believes that alternative investments offer some protection from volatility, and have proven to be a healthy way for investors to balance the need for retirement income with continued asset growth. Nevertheless, about 20 percent of the surveyed advisers claimed they had not used alternative investments, because their clients were afraid of them or knew very little about their performance. Prior to alternatives rising in demand post-2008, they were only known to wealthy clients. Because they were a carefully guarded investment secret, nowadays advisers must educate their clients, before investing in them.

Albeit a learning experience for most investment-seekers, alternative investments are rising in demand among advisers and investors alike. This is primarily because of their proven ability to improve investment returns while helping to reduce exposure to unnecessary risk. Investors have become well-aware that these are two things that traditional portfolios - consisting of equities and fixed-income vehicles, cannot deliver; particularly in a volatile market. Thus, as the investment community looks to the future, it appears traditional investments have become a thing of the past.

Do Not Invest in Stocks if it Feels Like a Good Investment

When it comes to investing in the stock market many investors do not realize that they have left themselves exposed to certain disaster, if the market were to suddenly turn downward. This is often because too many investors concentrate heavily on only one side of stock market trading: Investing. In doing so, they completely ignore the other side of the trade: Selling. Experienced investors know that both sides must be balanced, in order to make money in the stock market.

When it comes to investing in stocks, investors must also determine what point they wish to sell at, both good (high) and bad (low). The best time to make this determination is when the investor initially makes their investment, and should be based on the the investment’s long-term price average. It doesn't end there though. Investors will need to constantly review their profit targets for each stock market investment held, because market prices will change daily, as will their opportunities to buy and sell.

Understanding how difficult it can be to sell off a stock investment, making an investment simply because it feels like a good idea, is a certain recipe for disaster. It is paramount that investors learn about investments before investing. Any investor who is not up to this kind of research beforehand, must realize that they are not investing, they are gambling. In this case, investors might be better off hiring a broker or investment adviser who systematically follows a method of buying and selling that can be measured for success, instead of just doing it because it feels like a good investment.

Stock Market Losses Spell Gains For Alternative Investments

If you took a poll at any investors conference, you would find out that the number one question asked among investors would be "What do you have in your portfolio?" Of course the vast majority of answers would be different nowadays. In past years though, the answers would invariably be dominated by responses that included a variety of stocks and bonds. However, many investors have changed their approach to investing in the last decade. As the stock markets continue to fall and gold has begun to lose its luster, investment-seekers are losing their confidence and moving toward the profitable alternative options.

Recent reports have shown that since the financial crisis begin in 2008, the percentage of American households that invested in the stock markets has declined every year since and the trend is expected to continue. In fact, with all the ups and downs in the markets since the turn of the century, investors in stocks have only seen a marginal increase overall. Although, many stock market investors hope to see a return to the glory days of the 1980’s and 1990’s, it looks as though those days may be gone for good. It seems the investment industry is being overtaken by the many alternative opportunities that are now available in the marketplace.

As a result of the shift in consumer confidence to alternative options, many global financial advisers and firms have begun to include more alternative investments in their clients’ portfolios. Before the year 2000, the percentage of alternatives in an average portfolio was relatively minimal. Since that time, alternative investments have given investors a reason to invest and the percentage rate has grown substantially. Nowadays, it is recommended in the industry that investors include (at least) 30 per cent alternatives, with some financial experts believing a 50/50 split between traditional options and alternatives; is the best strategy. In fact, there has been a huge surge in the market of financial firms that only deal in alternative options since 2008 and they are gaining in popularity.

Alternative options are investments such as real estate, oil and gas, precious metals, precious gems, fine art, currencies and even shipping containers. Since alternatives are not correlated to stocks and bonds they are not subject to the same ups and downs in the market that stocks and bonds are. As a result, many investment firms now strongly advise that a well-balanced portfolio, should contain the right percentage of alternative investments to act as a guard against under-performing traditional investments. In the minds of investors, the answer is clear. Alternatives are becoming increasingly popular because the have demonstrated that they can deliver constant returns, while most of the popular traditional options are producing very poor results and repeatedly reporting losses.

Investors Seek Alternative Investments to Reduce Stock Risks

In 2008, many investors experienced the hazards of stock ownership, firsthand. The result was devastating losses and a growing fear that they would not meet their investment or retirement goals, without holding on to stocks for the long-term. Although the desire to recoup losses is understandable, behavioral economists have shown that it can cloud an investor's judgment and cause them to take more risk, than they can handle.

Nowadays, investors have been lulled into thinking that long-term stock investing, greatly reduces their investment risk. The truth of the matter is that stocks are risky, no matter how long you hold them. Even though findings from a recent research paper by Ned Davis Research Center, reported that equities will perform better than some other traditional investing options, especially when compared to safer investments; like high-interest savings accounts (for example). Most investors believe that is as it should be. Higher returns should modestly compensate investors for taking the added risk. However, this in no way implies that stocks will become less risky, over time.

Despite the assurances of the financial industry, stocks are always a risky investment and the longer investor's hold them, the better chance there is that an economic downturn; will blindside the investment community. Because stocks don't always perform the way investor's would like, and diversification of a stock portfolio cannot eliminate/reduce the investment risk, confused investors are seeking alternatives to improve the over-all performance; of their traditional investment strategies.