What To Expect from the Market In the Coming Years

What History Tells Us About the US and Global Stock Markets

October 14, 2008

Greetings!

I hope you are reading these articles and emails I am sending out because Alix and I are going through many junk articles to find these informative and helpful ones.

US Stock Market is Valued Fairly...But Wait

For the first time in many years the US stock market (S&P 500) has a P/E ratio that is equal to the 82 year average. However, that does not mean that the bear is over. If history repeats itself then the market will go down until the P/E ratio hits 7 or so and therefore be selling for a 50% discount compared to the 82 year average of 15.

This article does as good of a job as any as describing how human emotions have dictated the price swings of the US stock market in the past. Because US and foreign stocks are now highly correlated you can probably safely go ahead and apply the same logic (found in the article) to foreign stocks.

Click here to read this superb article titled, "What History Tells Us About the Market" by Jason Zweig. Jason Zweig updated the book "The Intelligent Investor" by Benjamin Graham. This book is currently located on my wife's night stand, to give you an idea of how often we refer to it in understanding human behavior around the US stock market.

Bottomline:

You can still make money in the US stock market or grow your account values over the next several years even though the global bear stock market is probably not near over. There are 3 wise ways that I help my clients invest:

1) 100% preversation mode - This strategy is used to create income for the client and at least fulfill the minimum requirement of a steward by getting interest on the money that God has entrusted to their care. See Matthew 25:27.

2) Truly Diversified Portfolio(R) (TDP(R)) - This strategy involves diversifying into 7 or even 8 different asset classes and will help God's steward to grow and preserve, over the time, what he or she has been entrusted with. See Ecclesiastes 11:2.

3) Strategic Value Growth (SVG) - Buy low and sell high, this is a trading strategy. This is a strategy that aims to buy undervalued investments (typically stocks from anywhere in the world and any sector) and sell them after they appreciate. As the article states the only way to make money in stocks until the general bear market is over will be to buy stocks that are under or fairly valued. See Matthew 25:16.

Being a good steward is hard because we have to deal with our human emotions of fear and greed. However, if we could become robots and follow all of God's basic financial principles (get of debt, live below our income, save, give, pay taxes, etc.) it really isn't as hard as say relationships.

Sincerely,

Thomas Cloud, Jr., CFP(R), ChFC(R)