I love watching shows about nature and seeing large herds of gazelle elegantly prancing across an African savanna. They are majestic to watch and they move in unison like a well-choreographed ballet troupe.
Well, I happened to be watching one of these shows this past weekend and I noticed something for the first time. While I was watching, I noticed that only those out in front knew where they were going. The others and especially those in the middle just went along with the pack.
It also got me thinking that the ones in the middle were also the most vulnerable because the ones in the front, on the sides, and the back were in the best position to sense danger from predators and had a head start on the ones in the middle when making a run for it. The ones in the middle were at a disadvantage from a visibility aspect.
After watching these marauding packs of gazelles for a while, I realized that what I was seeing was no different than what happens on Wall Street.
At the front of the pack, you have the professional financial advisers, brokers, pundits, and money managers leading the pack along. They can see the danger sooner than the individual investor and are usually the first to save their own skins.
The ones at the end of the pack on Wall Street are the casual investors – the novices and newbies. As the professionals in the front, they’re highly sensitive to danger and bail at the first sign of danger. They don’t have professionals to guide them blindly.
The retail investor (you, the individual) is caught in the middle of the pack. When relying on professionals, you are the last ones to sense danger and you are the ones who bear the brunt of market disasters.
Don’t get caught in the middle of the pack!
Those with a thousand-foot view are currently sounding the alarm on Wall Street and they’re saying to run while you can. And there’s no trustier investor with a pulse on the Wall Street savanna than Warren Buffett and he’s screaming, “Don’t buy in the stock market!”
Besides his words in the financial press, Warren Buffett is also showing with his actions that now is a bad time to invest in stocks.
Here’s how: He’s cashing out billions of Berkshire Hathaway’s (his own public investment company) stock holdings and buying back Berkshire stock. In other words, he’s sidelining his cash.
What about those in the middle of the pack? So far, the retail investors are either not seeing the warning signs or ignoring them.
Why is Warren Buffett getting nervous? He thinks stocks are way overpriced.
After falling more than 30% in March at the beginning of the COVID-19 pandemic, the Dow has since recovered and recently topped its previous high in February of this year before the crisis hit.
Why doesn’t Warren Buffett like this latest rally? He thinks the stock market is way overvalued.
He relies on one particular indicator to gauge market value. He calls it “The best single measure of where valuations stand at any given moment.”
“The gauge takes the combined market capitalizations of publicly traded stocks worldwide and divides it by global gross domestic product,” explains Markets Insider. “A reading of more than 100% suggests that the global stock market is overvalued relative to the world economy.” This indicator has recently soared towards an all-time high, for both the U.S. and the world.
Buffett’s indicator isn’t the only gauge telling us the stock market is on a sugar high and sure to come crashing down.
The Dow’s price/earnings (PE) ratio is also sounding the alarms. The PE ratio measures the average of the Dow company stock prices compared to their earnings.
A high ratio indicates stock prices out of touch with underlying economic fundamentals. So with the Dow currently trading at a PE ratio of around 28 – nearly double the historic average of 15 – stocks are clearly overvalued and bound to come crashing back to earth.
Warren Buffett is clearly re-allocating AWAY from the stock market.
Don’t get caught in the middle of the pack and wait until it’s too late to get out of the way of danger. Warren Buffett has already fled.
You may be asking, “But where do I go once I get out of the Wall Street danger?” Follow the smart gazelles who know where the prime feeding grounds and watering holes are.
FOLLOW THE SMART MONEY!
The smart money (a.k.a. the ultra-rich and institutional investors) broke away from the pack long ago. They were prepared for the current economic turmoil because they started pulling out of the stock market long ago.
They reallocated the assets they pulled from the stock market to assets they had long favored – assets that make it possible for them to not have to rely on their jobs for income.
That’s why the smart money follows alternative assets – especially ones that produce consistent cash flow backed by tangible assets and which provide significant tax savings.
That’s why the smart money is drawn to commercial real estate, especially in segments that thrive in a downturn – assets like multifamily and affordable housing.
… GET OUT FROM THE MIDDLE OF PACK …
Avoid the Wall Street danger now and look to alternative investments that could provide a safe, steady, stream of cash flow and reliable appreciation – all backed by a hard asset with significant tax benefits.