The Stock Market Is Always Overvalued

The stock market has always seemed overvalued to me.  I remember when I first started investing in the mid-1990s.  The Dow Jones Industrial Average was closing in on 5000.  It made me nervous.  The market had moved too far, too fast.  I just knew a correction was coming.  The market is now four times higher than at that time.

By temperament, when it comes to stocks, I am always keenly aware of the challenges facing the economy, the U.S. deficit and overall debt load, the worsening demographics, etc.  This perspective has helped me perhaps avoid bubbles, but it has hurt me worse–by always holding back and being more cautious on the markets than I should have.  I did get aggressive in 2008 and early 2009–so I’m not a total permabear.  Nonetheless, my bias is to see the risks to the market and economy.

Luckily, I have also always known that over long periods of time the markets (in the U.S. and Western Europe) tend rise to reflect the ever greater amount of economic activity taking place in those economies.  So I reaped most of the gains despite my natural bias.

There are millions of other investors (and potential investors) who share this bias and are suffering accordingly.  There are always reasons to be skeptical.  Debt….Demographics….Dysfunctional politics…..  Be careful that this doesn’t hold you back.

Think about it.  What’s your bias?