Announcer:
4 Your Money is brought to you by NelsonCorp Wealth Management.
Brandy Auterson-Hurst:
It’s now time for 4 Your Money. We’re joined by David Nelson, CEO of NelsonCorp Wealth Management. Welcome back, David.
David Nelson:
Thank you very much Brandy.
Brandy Auterson-Hurst:
So what can you share about how valuations are looking in the US stock market right now?
David Nelson:
Boy, this is a topic I’d love to chat with people about. Valuations, there’s so many different ways as far as to price. Is the market overpriced? Is it fairly priced? So there’s a lot of different ways of doing it. But one of my real heroes as far as this industry is concerned is a Yale professor, his name is Robert Schiller. And he’s created this index that takes a little different approach to trying to value, and should I be concerned about the market?
And what he looks at is going back 10 years, and look at today as far as in combining those 10 year periods. And what we find there in the chart that I have here is going to illustrate. In the yellow dotted line, it’s showing historical levels, and that being a 14 as the measurement as far as they’re being pretty average.
And then we fast-forward to the far right where we see the red dotted line, and those numbers are significantly higher. So 14 seemed to be the norm. And again, it got above that, you started getting a little nervous. Got below that, you were hoping for really nice opportunities.
Fast-forward to the dot-com situation, year 2000. During that period, it levered up, and levered up significantly from there. And so now the norm seems to be more like a 38. Again, what we see here is that things have really changed. It has to do with steady earnings that are coming from a lot of tech companies.
Brandy Auterson-Hurst:
Okay. So should investors be worried about these high valuations?
David Nelson:
The valuations is one measure. They should certainly be aware of it, and at the end of the day, I wouldn’t be diving in in any significant way right now because the levels do exceed that red dotted line we looked at earlier.
Brandy Auterson-Hurst:
All right, David. As always, thanks for joining us.
Investing involves risk. Depending on the types of investments, there may be varying degrees of risk. Investors should be prepared to bear loss, including total loss of principal.
Indices mentioned are unmanaged and cannot be invested into directly.
This video includes a paid appearance.