Why Do People Think The Markets Are So Cheap?

What is it about our brains, ensuring that most people see the stock market through such a hazy short term window?

Let’s take the recent stock market level.  

Many people have emailed me, asking me whether they should sell off some bonds, or throw some money into the stock markets because the markets have fallen so far.

They have the right idea, but the wrong strategy…at least at this point.

When asked if I think people should sell bonds to buy into the stock market right now, I respond with this:

“Were you enthusiastically selling off bonds to buy stocks one year ago?”

The answer, of course, is typically no.

Then I ask the follow-up question:

“With U.S. stocks, for example, 7 percent higher today than they were one year ago, what makes you think stocks represent a better deal now, than they did 12 months ago?”

That’s when I get a blank stare.

The markets are still 7 percent higher than they were last August.

Rebalance, if you must, when your portfolio is significantly out of alignment.  

But if you weren’t excited about market levels last August, it doesn’t make sense for you to be excited about them now.

If a real market decline occurs, I’ll be rebalancing my portfolio.  And I’ll be rubbing my hands with glee.  But my portfolio is barely out of the aligned asset allocation I set for it.

The last time I sold bonds to buy stocks was in June of 2010.  And the markets still have a long way to fall before hitting those levels.

I hope that happens, but until it does… pardon my bluntness, but the markets haven’t fallen at all – yet.

Let’s hope they do.