Ted Bauman, investing expert, says that the chances are equal that the stock market could plummet or continue to rise. Bauman who was born in the US attended college in South Africa studying economics and history. He had a career spanning over twenty years in the nonprofit sector focusing on housing projects that were low cost to help people out of the slums.
— Ted Bauman Guru (@TedBaumanGuru) December 11, 2018
Stocks are overvalued in the United States, which is why Ted Bauman uses the adjusted price to earnings ratio from Robert Shiller. This ratio is known as CAPE and uses a decade of stock prices compared to the earnings of corporations. The S&P 500 is nearly at a historical high currently with a 32 CAPE ratio, and double the historical ratios average. It would be a drop of over 35 percent if the market went back to the almost 17 that is the normal ratio.
Effects of a Drop
The realization that investors would not get future dividends to get back the initial investment because there would only be speculation about future gains. Investors would drop stocks in search of profits which would have the opposite effect. The other effect would be an increase in the appeal of alternative assets.
Recognizing the Yield Curve
Ted Bauman believes that it is possible that the U.S. Treasury yield curve would be recognized by investors. There is a small difference between the short terms yield and the low rates of long-term interest. There are not any spectacular events expected in the national economy during the next few years. A recession could result in the S&P 500 dropping over 25 percent.
Crashing and Rebounding
Ted Bauman says there is also the potential for an increase to follow a crash. Selling based on rules would cause a quick drop with partial recovery following. Bauman recommends avoiding decisions that are made as a result of panic.
Ted Bauman reminds investors to plan and stay calm when it comes to the future. It is important that risk be reduced by diversifying, and stocks that are less volatile should be sought out.
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