How To Tell When The Stock Market Is Overvalued

Share this & earn $10
Cooper Academy - Investing
Published at : 09 Dec 2020
107917 views
3803
104

In this video we go over 4 key methods to tell when the stock market is overvalued. The Market P/E, the Shiller P/E, The Buffett Indicator & Overall Market Returns.

https://www.multpl.com/s-p-500-pe-ratio
https://www.multpl.com/shiller-pe


📊 Sven Carlin (Expert Investor) Portfolio & Free Investing Course: http://bit.ly/SvenCarlinPortfolio

📈 How To Invest Course: http://bit.ly/theinvestingacademy-how-to-invest-in-the-stock-market

__________________________________

One of the most asked questions that investors are curious about, is how do you tell whether the stock market is overvalued? Are prices too high, should we wait for the market to go down, or is now actually a fine time to get in?

And this is an important question to ask, because let’s be honest no one likes putting there money in the stock market and then seeing prices fall. It’s not a fun experience, I’ve certainly gone through it before.

But there are a number of indicators that we can look at in order to determine if the market is overvalued. Or at the very least get a good feel for where market valuations stand.

In this video we’re going to explain the 4 key indicators that we can use to determine whether a market is overvalued, fair valued or underpriced… I’m going to use todays USA market as an example but you can use market at any time with these indicators…


Method 1: The Market P/E Ratio

Now I’m sure you’ve heard of this metric before, the p/e ratio. Or price to earnings ratio. I don’t know if you’re aware of this but you can actually get the p/e ratio of the entire market as a whole. And you can use this to get a feel for if things are overvalued. Let me explain...

So the market p/e ratio, what you first need, is a guage of the entire market.
Now in the USA, they have an index called the S & P 500.

The S & P 500 measures the performance of 500 very large and popular companies in the States. Essentially this index tracks the entire USA market, it’s known as a benchmark for the market as a whole.

So what we do is get the price of the index aka how much do stocks overall cost, and then you compare this to the earnings. Aka how much money are the stocks bringing in. In terms of profit of course.

So cost versus profit it’s the oldest benchmark figure in the book.
And the P/E is simple to find. All we do is a good old google search. And we go on the website multipl.com which shows us this graph.

Now as you can see, the current S & P 500 p/e ratio is 32.95. If you take that and look through history, you can see that it’s quite a bit higher than it’s normal figure. The average p/e ratio throughout history is 15.85. Right now it’s double that, which isn’t a good sign.

I mean the p/e ratio is similar to what it was back in 1999. Where the dot com crash was just about to happen. In 1999 the market p/e was 32.9. This potentially means the current market may be overvalued… But we have to look at the other indicators in order to confirm this hypothesis…


Method 2: Shiller P/E Ratio.


Now there’s investors who’ve come along and criticized the traditional p/e ratio for measuring the market. They say earnings in a particular year can fluctuate because of business cycles and thus it’s not accurate. That’s where Professor Robert Shiller came along and he developed something called the Shiller P/E ratio.

What he did was he averaged the earnings over the past 10 years and adjusted them for inflation so that market fluctuations would not be in the equation.
And thus a lot of investors believe it’s a more accurate way of measuring the market.

Anyway so currently the Shiller p/e ratio sits at 30.27. That’s a lot higher than what it normally is if you look back through history. The average Shiller p/e throughout history, the past 100 years or so is 16.75. So it’s about 14 points higher than the average at the current point in time of making this video.

However the average over the past 20 years is 25.6 which would make things seem a whole lot more reasonable... (ok that's all I can fit in)


Subscribe Here: https://bit.ly/2Y1kNq8

___

DISCLAIMER: It's important to note that I am not a financial adviser and you should do your own research when picking stocks to invest in. These are just some of my viewpoints, by no means would I recommend watching one YouTube video and then immediately buying that stock. This video was made for educational and entertainment purposes only. Consult your financial adviser.
stock market overvaluedstock market overpricedhow to tell when the stock market will crash

8 Steps To Buying Your First Rental Property

8 Steps To Buying Your First Rental Property

How To Stop A Heart Attack - Cardiology Let's Play

How To Stop A Heart Attack - Cardiology Let's Play

ASMR PAN DE SAL EGG SANDWICH FOR BREAKFAST // NO TALKING // EATING SHOW

ASMR PAN DE SAL EGG SANDWICH FOR BREAKFAST // NO TALKING // EATING SHOW

Sustainable Holiday Gift Guide

Sustainable Holiday Gift Guide

The Importance of Having Thick Skin - Jocko Willink and Jordan Peterson

The Importance of Having Thick Skin - Jocko Willink and Jordan Peterson

Components of a Computer Network

Components of a Computer Network

Roblox is about to delete this feature after 12 years...

Roblox is about to delete this feature after 12 years...

5 More Strange and Unnerving YouTube Videos

5 More Strange and Unnerving YouTube Videos

1:00 PM - IBPS Clerk 2018 | Reasoning by Deepak Sir | Course of Action

1:00 PM - IBPS Clerk 2018 | Reasoning by Deepak Sir | Course of Action

Articles | question and answers from previous Madhya Pradesh teachers eligibility exam

Articles | question and answers from previous Madhya Pradesh teachers eligibility exam

Don't Use RSI Like The 90% - Do This Instead

Don't Use RSI Like The 90% - Do This Instead

Digital Youth Forum 2020

Digital Youth Forum 2020

"Lord of the Boundless Curves of Space" -  Hymn 97

"Lord of the Boundless Curves of Space" - Hymn 97

Randy Crawford - You Might Need Somebody 1981 Remastered

Randy Crawford - You Might Need Somebody 1981 Remastered

You might also like

You might also like

Tapering Off Psychiatric Drugs with Diet, Nutrition and Lifestyle Changes: Dr. Kelly Brogan, M.D.

Tapering Off Psychiatric Drugs with Diet, Nutrition and Lifestyle Changes: Dr. Kelly Brogan, M.D.

Black Messa Ачивки The Plan и Unquestionably Ethical. Все изи))

Black Messa Ачивки The Plan и Unquestionably Ethical. Все изи))

Jeffrey Lurie fires Doug Peterson should Dan Orlovsky be considered as new Coach?

Jeffrey Lurie fires Doug Peterson should Dan Orlovsky be considered as new Coach?

The Most Popular Christmas Songs Ever - Best Traditional Christmas Music Playlist 2020

The Most Popular Christmas Songs Ever - Best Traditional Christmas Music Playlist 2020

On-Demand Apparel Microfactory - MAGIC Las Vegas Feb. 2018 Booth Presentation

On-Demand Apparel Microfactory - MAGIC Las Vegas Feb. 2018 Booth Presentation

michael jackson - bad (lyrics)

michael jackson - bad (lyrics)

WWE Extreme Rules lethal weapons - WWE Top 10

WWE Extreme Rules lethal weapons - WWE Top 10

Augusto Farfus and his wife in a M3 in Nürburgring HD

Augusto Farfus and his wife in a M3 in Nürburgring HD

WHAT ARE THE ODDS COMPILATION - #3 - 100% LUCK

WHAT ARE THE ODDS COMPILATION - #3 - 100% LUCK

Halie Loren - Tender To the Touch

Halie Loren - Tender To the Touch

Intended Method of Revealing the Black Market

Intended Method of Revealing the Black Market

BEKE Stock Analysis (KE Holdings) - World's Largest Real Estate Platform

BEKE Stock Analysis (KE Holdings) - World's Largest Real Estate Platform

Master the American Accent: The Placement of American English

Master the American Accent: The Placement of American English

Is the Story of the Maccabees Relevant for Us Today?

Is the Story of the Maccabees Relevant for Us Today?

The Rules (Guidelines) of Adventure — The Pirates of the Caribbean

The Rules (Guidelines) of Adventure — The Pirates of the Caribbean

Delicate Adornment

Delicate Adornment

Growth Stocks Overvalued?? Airbnb, DoorDash, C3.AI, Asana...

Growth Stocks Overvalued?? Airbnb, DoorDash, C3.AI, Asana...

How To: 15 Ways To Wear a Headscarf

How To: 15 Ways To Wear a Headscarf

Lil Durk - Triflin Hoes (Lyrics)

Lil Durk - Triflin Hoes (Lyrics)

6 Tips & Tricks For Early Game / New Characters | Dying Light Beginner Guide

6 Tips & Tricks For Early Game / New Characters | Dying Light Beginner Guide

Jim Kwik: "I will teach you skills that you'll have for the rest of your life"

Jim Kwik: "I will teach you skills that you'll have for the rest of your life"

US Election: Georgia's black voters 'voting for their lives'

US Election: Georgia's black voters 'voting for their lives'

Escape to Rural France- Christmas kitchen-EP022

Escape to Rural France- Christmas kitchen-EP022

Surprising My Lonely Grandad With A New Puppy

Surprising My Lonely Grandad With A New Puppy

Journey - Open Arms (Escape Tour 1981: Live In Houston)

Journey - Open Arms (Escape Tour 1981: Live In Houston)

The Weeknd- What You Need (Unreleased Version)

The Weeknd- What You Need (Unreleased Version)

Best Speakers Of 2020, Most Memorable Ones

Best Speakers Of 2020, Most Memorable Ones

Pitbull - Messin' Around (Audio) ft. Enrique Iglesias

Pitbull - Messin' Around (Audio) ft. Enrique Iglesias

Mark Twain "The Celebrated Jumping Frog of Calaveras County" FAMOUS Walter Brennan is 2nd voice

Mark Twain "The Celebrated Jumping Frog of Calaveras County" FAMOUS Walter Brennan is 2nd voice

The Fixies | A Great Mighty Mess | Videos For Kids | Cartoons For Kids

The Fixies | A Great Mighty Mess | Videos For Kids | Cartoons For Kids

IELTS Speaking Part 1: Common Questions

IELTS Speaking Part 1: Common Questions

Prince - Controversy (Official Music Video)

Prince - Controversy (Official Music Video)

Star War The Third Gathers: Backstroke of the West HD (Dubbed)

Star War The Third Gathers: Backstroke of the West HD (Dubbed)

5 Famous Drum Beats You're Probably Playing Wrong

5 Famous Drum Beats You're Probably Playing Wrong