So it's, no secret, that the stock marketplace right now is currently smashing through all-time highs and boy is the marketplace expensive? We're, currently looking at a schiller pe of around 35. What that means is.
Essentially, investors are willing to pay realistically double for the s p 500 as to what they would normally pay for it. Historically, we're, also seeing a wilshire gdp. A buffet indicator of now 200, which is just insane considering like a fully priced stock marketplace, is at about 100, and a cheap stock marketplace is like 50 60.
. But here's. The tricky thing most of us investors out there are passive investors. Passive investing is now by far the most common investing strategy in the whole world. It is the strategy of simply buying the whole marketplace and just throughout your life, showing up periodically and just continuing to contribute to that broadly diversified portfolio.
The idea here is that we consistently invest throughout our whole life and we simply get the average marketplace return by doing that, there's, no brain power involved. We're, not trying to pick individual stocks.
We're, not staying up all night doing research on individual businesses, we're, simply buying the marketplace and going along for the ride and, in all honesty, this method of investing has made a hell of a lot of investors.
A hell of a lot of money, it's, made a hell of a lot of just average joe investors. People like you and me it & # 39. S made us a lot of money consistently over a long period of time. But one thing i've felt lately and chances are you & # 39? Ve probably felt this too.
If you're, a passive investor is just how painful it is showing up at these current times where every metric under the sun is showing us that the marketplace is really quite dangerously overvalued. It's, been quite painful, showing up and continually sinking more and more money into the marketplace.
At these levels i mean the things start to go through your mind. Well, what if i know the marketplace is so overvalued. What, if a massive correction is around the corner? Do we persist even in these times, or do we kind of chill out and maybe not buy our beloved etf so much over the next little, while until the marketplace is seen to be not so dangerous anymore? Well, obviously, that's, a very difficult question to answer so i'm, going to take the cop-out approach and i'm, not going to answer it, but i am instead going to let the grandfather of passive investing jack Bogle explain it instead interested i'll, see in a second [ Music ].
This video is sponsored by stake, download the stake app today and use the referral code awc to receive a free stock. When you fund your account details in the description, john clifton bogle was an american investor, business, magnate and philanthropist.
But you guys probably know him quite simply as the founder of the vanguard group and thus the founder of the low-cost index fund and thus the person that started this whole movement of low-cost, accessible, passive investing.
You may not have heard of him before and in all honesty, when we think about people like warren buffett and charlie munger, he doesn't, really get a mention among the most famous investing names. However, he really should, because by far he has helped more people on this earth create substantial wealth than any other investor and thanks to the power of youtube it was just.
Yesterday i was watching a 1997 speech by jack bogle himself and that's. Why i love youtube so much? You can literally find pretty much anything you want to consume on youtube. Anyway. I was watching this speech and what struck me was that he was talking about how passive investors should go about their investing at times where the marketplace looks pretty dicey when it's, pushing like all-time highs and it's.
Looking very overvalued, so i want to share a couple of clips with you guys from this interview and, first of all, listen to how he describes the marketplace conditions that he was seeing then in 1997, and see just how well it matches up to what we're seeing in the stock marketplace today, in short, it seems to me that speculation, betting on higher and higher valuations is in the driver's, seat investment, betting on the fundamentals of dividend yields and earnings.
Growth is in the back seat, probably even in the rumble seed, but when speculation drives stock returns in the short run, while it drives stocks returns in the short run. The crystal clear lesson of history, at least the past 200 years, that in the long run, fundamentals drive returns so that tension has to be resolved just like what he was talking about.
The run up towards the tech bubble. What we're, currently seeing in the marketplace is marketplace returns, the marketplace being driven up by speculation, opposed to people investing for the fundamentals of these businesses and, as i've discussed on the channel before this, gives us two possible future Scenarios, because here's, the thing price, always at some point in the future, will again align with intrinsic value.
Okay. So, yes, there are going to be periods of time where, even if we just talk about the marketplace in general, the price of the marketplace will be substantially higher than its intrinsic value, and we & # 39.
Ll also have times where the price of the marketplace is below the intrinsic value and, as we see from history as time goes on, it runs through cycles of being overvalued undervalued. But the thing that we know is that, at some point into the future price will once again match up with intrinsic value, but in times when the marketplace is really overvalued.
What this means is, it gives us two possible future scenarios with the idea that, at some point into the future price will once again match up with intrinsic value, so that tension has to be resolved.
Let me give you two extreme possibilities. One: a marketplace drop of 35 percent, just for the fun of it. This would lower price earnings ratio to a more nor ratios to a more normal, normal level of about 13 times two.
We're in a new era in which stock returns, average 15 14 earnings growth and a 1 dividend yield, rather than the long-term historic norm of about ten and a half percent six and a half percent earnings growth, plus a four percent dividend yield In short, a new era of boom times and high valuations that would justify today's price levels.
Now, of course, it could happen, but i wouldn't bet the ranch on it. The u.s stock marketplace, however, seems to be betting. The ranch on it, it's priced, i think, for the best of times, and only for the best of times wow.
So there you go that fits pretty perfectly into the 2021 investing environment that we're. Currently, seeing now he goes into a bit of detail there, but he's still, essentially just talking about two potential possibilities.
What we can see within a marketplace that's very overvalued aka. The price is much higher than the current intrinsic value is scenario number one you can see the stock price or the marketplace price fall so that again in the future, we will see price meet intrinsic value or, on the other side or the scenario number two.
What we could see is a new economic boom time, where businesses are able to grow very, very quickly, say not in the 10 per annum ranges, but more in the 20 or 30 percent pranam ranges and that increase in growth lifts the intrinsic value of the businesses And thus the marketplace and then the intrinsic value rises to meet the price they're, the two ways that price can once again meet value in an overvalued marketplace.
But then that begs the question: well, what should we as passive investors do about? It? Should we still be investing, or should we be holding off and waiting it out? Well, luckily, for us, jack gives five timeless tips that should help passive investors navigate even the most expensive marketplace situations.
On that note, then, let me close with five simple principles. A few ideas of what you might want to think about principles of investing that may help you first invest. You must the biggest risk is the long-term risk of not putting your money to work at a generous return, not the short-term, but nonetheless real risk of price volatility.
Even those stocks seem very high. Consider what i said in my book a little plug there uh never think you know more than the marketplace. Does you have to be wrong? If you do so step, one keep investing the biggest risk you can take right now is not investing at all.
I love this tip and i wholeheartedly agree. I believe that, no matter the weather, passive investors should number one continue to show up. Remember it's, the ability of this strategy that we follow to work across decades and decades, regardless of what marketplace conditions we see.
That makes this strategy just so so powerful. So absolutely the number one tip - and i totally agree with jack when he says this: no matter what the marketplace's, doing there's, a far bigger risk in not investing than continuing to invest if you are a passive investor.
So first things first don't. Stop second, give yourself all the time you can at the extremes. If you're in the 20s begin to invest in stocks, you & # 39. Ve only got a little bit. If you're in the 60s, invest more in bonds and lessen stocks, but always remember that compound interest is a miracle, and time is your friend second tip time is your friend who cares what happens tomorrow next week next month across the next year? It really doesn't matter for passive investors.
Passive investors should always go back and look at what are the ultra long term trends of the stock marketplace and buy into that buy into the long term trends. If you're able to do that as a passive investor, basically everything looks great, no matter what starting point like pick, your starting point go back through the history of, say, the s p, 500 or the asx300 pick a starting point wherever you like.
You can pick them the highest of the highest starting points and if you zoom out across 20 to 30 years, really doesn't matter where you start, you're, pretty much always going to be making money. Third, have rational expectations about future returns and be mentally prepared for marketplace declines, always remember in good times and bad times alike.
This, too shall pass away. I spend a full page in my book on that sage, piece of wisdom. If this, too, shall indeed pass away and your emotions can kill you, you should keep them out of your investment program because impulse is your foe, your emotions can kill you.
I love this quote impulse. Is your foe? The reason that passive investing works so damn well is that the strategy is impervious to emotion. You just show up you keep investing and it works. In fact, the only time when passive investing throughout history has not worked is when the investor has been sucked into doing something silly through their own emotions and has ended up not following this strict passive, investing dollar cost averaging approach.
So don't, let that happen. Fourth rely on simplicity, simplicity. Above all, there are too many witch doctors in this business with too many basic. Investing is simple: a sensible asset allocation to stocks, bonds and reserves, a middle-of-the-road selection of diversified funds, a careful balancing of risks and returns and, lest we forget, costs which can kill long-run returns too.
Don't disregard low-cost index funds. That's. My only plug warren buffett just happens to agree on buttress by his support on the importance of cost and on the value of indexing, a nice third-party endorsement.
If you will fourth tip stay diversified, i mean this is now easier than ever before. To achieve you can, literally by buying one single etf, you can get exposure to every single stock in the entire marketplace from wherever you're from right.
If you can buy one stock and that can track the s p 500 or the wilshire 5000, whatever you can buy, one stocking achieve massive diversification and with economies of scale. Now it's easier and also cheaper than ever before.
To get into these low-cost index funds, especially when you're. Looking at companies like vanguard or blackrock, you really can't go wrong. It is easier and cheaper than ever before and fifth and last when you followed all of these four rules, as i said, and i've meant a thousand times, if not ten thousand times, no matter what happens stay the course.
Good luck in investing in these interesting times. Thank you step. Five hammer at home just stay the course. I always say that passive investing is one of the easiest, but also one of the hardest strategies to follow.
It is very, very simple: it requires no brain power, so in that aspect it is a very simple stock marketplace, investing strategy that is proven to work and generate great returns, but it's very hard to stay disciplined and continue to show up periodically.
In those same time, intervals investing that same amount following that dollar cost averaging strategy. That is where the difficulty lies in the passive investing strategy. It requires a lot of discipline to stay the course over decades and decades and decades to get that wealth building that we're all in it for okay, so tip number five just stay the course.
So, overall they are jack. Bogle's, five, timeless tips that should help passive investors out literally in any marketplace condition, but to really hammer home his points i wanted to do an example. Imagine you are someone sitting in the room in the audience listening to this speech in 1997 and like probably a lot of you guys that might be watching this video you want to get started with passive investing, but somehow you still even after watching the video you Still decide now i'm, going to wait on the sidelines.
I'm, going to put you put that situation back to 1997.. Imagine if you're sitting in the crowd listening to jack bogle thinking the same thing. No! No, no, i'm, still not gonna buy in because the marketplace's too expensive.
I know i want long-term wealth creation, but it's too pricey right now. Well, even if you bought in at the most exp, you bought into the s p 500, the most expensive point in 1997.. What would you have achieved? What 23 odd years later well look at this? You would have had a good time initially in the run-up before the tech bubble, but then you would have had a very bad time as the tech bubble popped.
Then you would have enjoyed a nice run up again before the gfc tore. Everything apart, you would have been down again and you know you would have had some turbulent emotions going on at that time, but you hung in there and over the last 10 10 11 12 years.
You would have just seen a fantastic run up, but where would you be well back then? In the at the highest point in 1997, the s p 500 was at 983 points and now in 2021 the s p 500 is at 3 800 points. So it's almost three times higher in 23 years ak if you invested 10 000 into the s p 500, when you at the highest point in 1997, the year that jack bogle gave this speech, and you just held on through thick and thin 23 years later, you're now sitting here in 2021, you'd, have about 40 000 to your name, and what did you have to do in the meantime? Nothing you just had to stay invested that's, it.
That's, why jack bogle says block out your emotion and just stay the course, but anyway i thought that was an interesting example to finish on. They are jack. Bogle's; timeless tips for passive investors to navigate every single marketplace condition.
Even if the marketplace's falling off a cliff, even if it's at all-time highs like what we're seeing right now, all five of these principles apply. So i definitely encourage you to really listen to him. He is the grandfather of passive, investing so take what he says on board and it will help you out a lot with your passive investing but overall, that is it for this video.
If you wanted a step-by-step approach to how to get started with the passive investing approach, definitely check out profitful down in the description below check out the links down there. The course you'll want to check out is stock marketplace investing for beginners.
That is a four hour in-depth course, which just describes and explains with examples: the full passive, investing uh idea and how to actually how to get started with that approach. So if you & # 39, re interested check it out down in the description, but that'll.
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It from me i'll, see you guys in the next video, hey guys, thanks for watching the video. Now a lot of people reach out to me and they ask what brokerage site do i use when i am buying or selling us stocks, and the answer to that is steak.
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Awc get your free stock and good luck with your investing thanks, always to stay for sponsoring these videos. Thanks to you guys for watching, and i'll - see you guys next time: [, Music, ], [ Applause, ], [, Music, ], [ Applause, ], [, Music, ], [ Applause, ], you