Phil Town is a hedge fund manager and author of 3 New York Times best-selling investment books, Invested, Rule #1, and Payback Time. On the InvestED podcast, Phil and his daughter Danielle shine a light on the successful investing strategies that gurus like Warren Buffett have used for 80 years. Listen in for a great stock market education on basics, learn how to invest on your own, and follow along with real-time examples and investing tips from week to week. Subscribe and leave a review. Questions? Email questions@investedpodcast.com.
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Is Doomsday Coming?
Warren Buffett is currently sitting on about $150 billion in cash. Could this mean that doomsday — or a major market correction — is coming?
Most of the time, successful investing is a waiting game. Just as there are poor times to sell your stocks, there are poor times to buy them as well. And sitting on cash while you wait for a better opportunity is often one of the best investing decisions that you can make.
As Rule #1 investors, we try to invest in companies that have at least a 50% margin of safety, meaning that there is at least a 50% upside between the company’s stock price and its true value.
When valuations are as high as they currently are, though, it becomes difficult to find any quality companies that exhibit this margin of safety.
Looking at the Shiller PE ratio, prices have only been this high twice in the past 140 years. The first time they got this high was in 1929. The second time was in 1999. But we might not be here for much longer.
Following the smart money — defined as money from big-time investors who know the market better than anyone — is rarely a bad idea, and right now, these investing gurus aren’t putting a lot of money into the market. Instead, the majority of the money flowing into the market right now is coming from retail investors.
While these retail investors are buying stocks faster than ever before, the big investing gurus are sitting on their cash. This alone is a pretty good indication that right now might not be the best time to buy into the market.
As Rule #1 investors, we like to find companies that are solid enough to survive and thrive no matter what the market does. When a major market correction, as the one that is very likely on the horizon drives the price of these companies down, the opportunity for great returns is higher than ever.
Will the stock market crash? What are you going to do if it does? Today, Phil and Danielle discuss what investors should look out for in the stock market, and how to prepare for a potential doomsday.
This Stock Market Crash Survival Guide will help you prepare for the next market crash and help you cash in when the market drops: https://bit.ly/3dDUfnF
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