So how crazy is the current situation?
In my view, psychology is optimistic, but not insane. I don’t hear anybody saying things like «this rocket ship is going to the moon» or «you have to get in, or you’ll miss it and you’ll kill yourself». People don’t say «there’s no price too high». So prices are lofty, but they’re not crazy. And when prices are merely high, that doesn’t mean the market is going to go down.
How should prudent investors navigate this tricky environment?
Let’s do a simple exercise. I would say that, at current levels, stocks are overvalued by 20-30%. Accordingly, maybe chances are that the market is going to be lower in a year from now. I would say the probability is 60-65%. But that also means there’s a 35-40% chance that the market will be higher. Meaning, there’s a tendency for stocks to go down, but it’s essential to recognize that this is far from certain. It’s not a 100%, 90%, or even 75% probability – nothing you can rely on. You have to understand that unless the market is insane in terms of valuations, anything can happen.
https://themarket.ch/english/...mp;mktcval=219&kid=nl219&ga=1
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