In economic theory, demand for things goes down as the price goes up. That seems
not to be the case for things we can mentally frame as "investments". As I review the posts on this board, it looks like the "investments" everyone is getting excited about are things that are getting more expensive, not less expensive. Specifically:
1) Cryptocurrencies
2) Housing, especially in unaffordable bubble markets
3) Speculative trash stocks like AMC and GME
4) Bonds yielding only 1.5% with the potential to lose 40% if interest rates rise
One would expect rational Mustachians from planet Vulcan to shift their spending and investing to things that have
not gone up in an unsustainable trend. They would invest counter-cyclically, unless everything had gone up, in which case they would invest defensively. FOMO and the justification of prices by pointing to past prices would not be a thing.
My two questions are 1) Why are we performance-chasing instead of being more rational? and 2) What kinds of things are rational to buy / invest in today?
My answers to the second question:
1) Equities Indexes. Don't fight the Fed in a year earnings are going to increase 30% or more. Vanguard ETFs remain super cheap for the value we get.
2) Financials. Forward PE of 14.4, 79.5% predicted earnings growth, low default rates, healthy consumer balance sheets, widening spreads, and pent-up demand for loans.
3) Long options when the VIX drops under 16. Protective puts could allow a higher stock allocation with less risk than a bond allocation.
4) Apparel, which is 2.5% cheaper than it was 12 mos ago, or Services Less Energy Services, which is up only 1.6% in the past 12 mos.
https://www.bls.gov/charts/consumer-price-index/consumer-price-index-by-category-line-chart.htm5) UK stock market, with a forward PE of 13.2. Euro stocks with a FPE of 16.4. Emerging markets in Europe and Latin America with low-teens forward PEs.
https://www.yardeni.com/pub/mscipe.pdfWhy aren't we excited about these cheap things? How many of us have instead leveraged to the eyeballs in housing, bought internet collectible money with our remaining savings, gambled on HODL stocks, and held bonds in our 401(k)s while dreaming of early retirement?