There is a saying that when a New York taxi driver asks you what share they should buy, you should sell all your stocks immediately on getting out of the taxi: a bubble is developing. The adage is that when Wall Street meets the High Street, alarm bells should ring.
It is, unfortunately, not that easy to go out and “sell all your stocks”. Trying to time the market – even when it is overheating – is a fool’s game, and leaves the participants poorer in the long term. And that is the key phrase: long term.
Rather than dumping your (hopefully carefully researched) assets, revisit your valuation metrics and decide if your portfolio – whether it consists of stocks, bonds, commodities, or cash – will withstand a crisis. Such as the Covid-19 market crash of almost a year ago.
No one foresaw it and the effects on portfolios were daunting. No investor, pensioner, or saver was left unscarred. However, the jump back to normality – driven by low-interest rates in well-off nations and subsequent high liquidity – was even more mind-boggling. And unfortunately this rapid return to “normality” may give rise to an even worse notion: that today’s rocketing asset prices, underpinned by low inflation, will remain intact forever.
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