World-famous investor Jeremy Graham had some words of warning the other day for stock market bulls sayings the market is a “fully-fledged epic bubble.” On Tuesday, Graham wrote a letter called “Waiting for the Last Dance” in which he stated speculative behavior, overvaluations, and turbulent price movements are all key factors indicating we are in a bubble.
According to Graham, “today, the P/E ratio of the market is in the top few percent of the historical range and teh economy is the worst few percent. This is complete without precedent and may even be a better measure of speculative intensity than any SPAC.” That being said, Graham failed to predict when the bubble will burst but guaranteed it will eventually and not even the Federal Reserve can print enough money to stop it.
Seeing as these are bold words from Graham, many investors are beginning to panic but it is not all bad news. Markets like this one are both exciting and also scary simultaneously. On one hand, we get to watch our portfolio rise to new heights but on the other hand, we don’t know what the future holds. However, we can do our best to try to predict it.
For example, the behavior of stocks like Tesla, Kodak, Hertz, and Nikola are all great examples of never-before-seen stock market mania. Many crypto market bulls stated that the volatility is held up by low-interest rates. Rates that some seem to think will stay in place forever. However, Graham strongly disagrees. He believes this is just another bubble like the tech bubble bursting in 2000 or the US housing bubble which collapsed in 2008. So when will this bubble find its mark?
If this truly is a bubble as Graham suggests, it’s important not to worry. There are some tactics one can take to ensure they protect themselves against a future collapse. For example, it may help to start investing in emerging market stocks, value stocks, and mutual funds. These have a history of more stability than current US growth stocks. Also, it may be wise to look into precious metals like gold as a stable hedge to keep your profits.
All in all, investing logic is still the same. Always keep a diversified portfolio, and never invest what you can’t afford to lose.