Hey Jesspeculators
Lol since I talk about money and finance all the time people simply assume I know what I'm doing. I honestly use my blog to share things I've read and researched to teach myself as well as those who are willing to take the time to read it.
In the last few weeks, I've had quite a few people ask me if they should buy into stocks since the market has crashed and continues to and they feel they can get in on the cheap and wait for the V or U shaped to return to so-called normality.
I'm by no means a stocks guy and I'm not saying you can't make money in the stock market if you're willing to jump in and ride every fed put and then sell and go back in, but who I'm speaking to are those looking to invest long term. Those who want to keep stocks for a considerable period before selling.
Would it be advisable to stay in or even dollar cost average their current position? Let's see, shall we?
Image path - centralcharts.com
What is cheap
The name of the game is obviously to buy low now and sell high in the future, take your profits and run for the hills thinking what a genius you are at seeing this amazing trade. However, there is a big difference between buying low and selling high, and buying high and trying to sell at even higher.
The stock market has been inflated with cheap money for some time and stocks are extremely overpriced. The only reason it hasn't crashed lower is due to new money being printed and pumped in to bail out the rich and pension funds who have been holding these toxic assets.
The bubble has been made worse by stock buybacks reducing the number of shares in circulation and artificially creating scarcity to create shareholder value rather than improving these companies.
Market cap to GDP ratio
Humans are investors and humans like simple answers, the simplest answer is price go up good, price go down, bad. However, judging wherein the price range you are is a completely different story and to get a better perspective you need to look at other metrics like the market cap vs GDP ratio.
Currently, the stock market is considered moderately overvalued with the market cap being more than 113.8% higher than GDP.
The rate of valuation for evaluating
- Significantly Undervalued - Ratio < 50%
- Modestly Undervalued - 50% < Ratio < 75%
- Fair Valued - 75% < Ratio < 90%
So you can see we're well higher the ratio for stocks or the market to be considered "cheap"
Image source: - gurufocus.com
Checking an individual stock
While the market is overvalued there are always individual stocks you could look at, so let's take a look at some of those famous tech stocks that have had major IPOs of late and see what they're doing in the market. I chose Pinterest, Snapchat, Lyft and Uber, all big tech stocks that are IPOs had much fanfare.
Pinterest is trading at $13.82 down from $25 damn that's a bargain right?
- Market cap 8 Billion
- Earnings 1.14 Billion
- Losses 1.36 Billion
- Earnings Per share - 3.44 (negative)
SnapChat
Snap Inc trades at a valuation of $11.06 and down from $17
- Market cap $16 Billion
- Earnings 1.73 Billion
- Losses 1.03 Billion
- Earnings Per share - $0.75 (negative)
Lyft
Lyft trades at a valuation of $22 and its down from $54 in the last 3 months so 41% of its value gone, sounds cheap to me right? Well, let's look at what it's doing.
- Market cap $6.746 Billion
- Earnings $3.6 Billion
- Losses $2.60 Billion
- Earnings Per share -$11.44 (negative)
Uber
Uber currently trades at 22.82 down from 41.50, man that's a bargain right?
- Market cap $40 Billion
- Earnings $14 Billion
- Losses $8.5 Billion
- Earnings Per share - $6.81 (negative)
As you can see these companies may have lost market cap, may have dropped in price but they are by no means good investments, they're overpriced and burning up cash quicker than they can make it and not offering shareholders any value.
Why would anyone want to hold onto shares that don't make money and offer dividends unless its to dump it to another sucker?
A Fed put to a Fed save
So who could that sucker be? I could be wrong and we could see the FED come in and buy up all stocks and move it to their balance sheet to save every single stockholder and become the holder of last resort and centralise the ownership of the entire stock market.
They've not started unlimited QE to play around and they'll pull the trigger to bail out companies and stockholders balance sheets.
Have your say
What do you good people of HIVE think? Have you met or known a millionaire that has lost it all?
So have at it my Jessies! If you don't have something to comment, comment "I am a Jessie."
Let's connect
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