I think more money has been lost because of the human fear of missing out – otherwise known as FOMO, than any other behavioral bias. Is it any wonder, just look at the headlines today:
- MarketWatch – Dow set for longest streak of monthly gains in 22 years as it surges above 24,000
- Bloomberg – Dow Surges More Than 300 Points
- ZeroHedge – WTF! Equity Markets Go Full Bitcoin
Speaking of Bitcoin – it’s price has risen 10-fold this year (and it is not even a real asset!).
Because of this fear – I will always have a portion of my investments in stock – even if I feel they are tragically overvalued. By participating in some of the irrational upside – you can avoid chasing manias.
As I type this post – the DOW and S&P 500 are sitting at all-time highs. I don’t think the fundamentals support this – and valuations are just crazy:
| Market Valuations: | Current | Mean | Delta |
| Shiller’s 10 Year PE Ratio: | 32.2 | 16.80 | 91.67% |
| Trailing 12 Month PE Ratio: | 25.5 | 15.68 | 62.63% |
| Tobin’s Q Ratio: | 1.086 | 0.68 | 59.71% |
| Market Cap to GDP: | 140.6 | 90.00 | 56.22% |
| Morningstar’s Fair Value: | 1.05 | 0.90 | 17.32% |
| Price to Sales: | 2.22 | 1.47 | 51.02% |
| Average Overvaluation: | 56.43% |
Obviously, with valuations this high, it would make sense to rebalance your portfolio to reduce some of your risk assets. But always try to keep a portion of your money in equities – to avoid the destructive pull of FOMO.
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