Something to Think AboutThose who have followed my posts know that I am also a student of history. Part of this stems from advice my Father provided me when I was very young. He said..."If you want to understand what is going on now, you need to understand how we got here." I still follow that advice in my decision making and that includes investment decisions.
So why do I mention this?
We are now at the end of 2024. The DJIA, baring some major development today will have risen this more than 20% this year. This follows a rise of 23% in 2023 for a total of almost 60% over the past two years. This back to back performance of the DOW has only happened three times in the past. In every single case, the market fell the falling year - 90% starting in 1929; 30% starting in 1937 and 10% starting in 1956.
Will history repeat itself again?
I dunno but I am being cautious and bulking up on more liquid investments.
The other measure that I look at is the Buffet indicator. Buffet uses the following relationship to determine if the market is overvalued or not and this is part of his decision regarding asset allocation....he takes the total capitalization of the. US market and compares it to US GDP. Buffet's theory is that the ratio of these two things should be roughly 1. What is it right now?......roughly 2.0!!
When I was still working on The Street in late 2007 and early 2008 (not long before I retired), I used to tell my clients that while it seems sunny right now, I see storm clouds on the horizon and we have to get ready for the storm that is coming. When I look at the current valuations and history as I described above we may be in for some rough weather at some time next year.