Broker Check

March 2017 Perspective: What To Do When Stocks Are Expensive

March 01, 2017

This month’s Perspective comes from Robert Shiller, by way of an article originally published by Bloomberg. Shiller is a Nobel Prize winning economist and Yale University Professor best known for his stock market valuation method that led him to warn investors about overpriced stocks prior to the dot-com crash in 2000. Good timing, as the S&P proceeded to fall 49% over the next 3 years.


Have you ever paid a premium price for something…a smartphone, an article of clothing, a car, or maybe a home…..only to see it fall in price after you made the purchase?


That’s the warning Shiller is making again about buying certain stocks today. The problem with his method is timing. If you look at the second chart in the article, you will see the S&P 500 has been “expensive” since 2010 (white line is above the blue average price).  Now, if you had acted on that information and avoided the S&P 500 altogether, you would have missed out on a 112% gain in that part of the portfolio since 2010.  What can we take from all of this if not when to buy and sell? Glad you asked!


Here are our Top 4 Takeaways:


  1. Know that just because the stock market is expensive doesn’t mean it won’t get more expensive.
  2. Understand that future returns tend to be higher when your purchase price is at a discount, not at a premium.
  3. Buy Low, Sell High: shift your asset allocation away from over-priced asset classes and toward under-priced asset classes.
  4. Diversify: own a variety of assets and management strategies in your investment comfort zone, so you can stay prudently invested through the inevitable price-corrections that occur in different markets at different times.


Our job is to help you pull all of the pieces of your financial picture together to give you confidence, clarity and sense of security as you work towards your objectives.


Link to the article: