Stock prices historically expensive

[Anonymous]

I keep reading that Stock prices historically expensive. What does it mean exactly? Not that it will impact my investment strategy. I have a boring investment strategy which consist of automatically investing in an index fund. I don't plan to change, but I was just curious about the meaning of that assertion.

[Anonymous]

People who make that statement often think we are due for a big correction. The stock market is too complicated and boring for me to care. It seems like a big casino to me. Like you said just stick to the boring stuff like VTI and leave the technical stuff and prediction to armchair financiers

[Anonymous]

P/E ratio off the chart high

[Anonymous]

When you’re in an era where a company like Opendoor was being gamma squeezed this week because of chatter on Wallstreetbets and a tweet. We’re in a raging bull market. Even with tariffs yet to come.

[Anonymous]

It depends on your age. If you are 25ish, stick with your plan. If you are 55 and no pension, might want to take some profits and roll into fixed income. If you have a pension that covers your expenses and health insurance, then keep rolling the dice.

For some, reliable cash flow becomes chief concern, not further unrealized gains.

[Anonymous]

Remember the adage that it’s not a stock market, it’s a market of stocks. For every overvalued stock, there are many undervalued stocks. Sadly, if the market crashes the undervalued stocks can get killed too.

[Anonymous]

Lots of tools to answer this issue. None I can definitively give you an answer.

In theory, the value of a stock is the firm’s per share discounted earnings or discounted cash flow for the future. You are basically predicting future earnings or cash flow, using a discount rate and valuing it in today’s dollars. You can also look to a stock’s intrinsic value (what are the assets of the dominant net of liabilities). These are just two examples of stock valuation. But the excess of a stock price relative to its discounted earnings/cash flow or over its intrinsic value is the “premium” a stock is worth. Those premiums are at relative all time highs right now.

During times of distress you can see those premiums narrow, or, in limited cases the stock was worth less than its intrinsic value. In that instance, corporate raiders take over a company and sell off its assets for more than they paid for the stocks.

A great handy tool to use is price to earnings. Generally speaking, on a p/e basis, the S&P500 is elevated right now, but not at historic or all time highs.

No exact science to any of this stuff, but if you can master enough valuation tools you can be directionally right about what is happening.

[Anonymous]

Lots of money sitting on the sideline and more being printed. It needs to go somewhere.
I hold a few small company stocks. If investors take interest in them, and they do every few months or about a year, they go from $7 to $50 to $300. Absolutely insane. In this case I think it's too much money chasing the same stock. Nothing to do with valuations.