Most stocks are now overpriced.
Historically, a normal price for a stock has been about a P/E of 15.
And historically, stocks have outperformed other assets.
Therefore, it makes sense to buy above average businesses when their shares trade at a P/E of 15.
Right now, I see 3 above average businesses trading at about a P/E of 15:
- Cheesecake Factory (CAKE)
- Omnicom (OMC)
- Howden Joinery
I’m not buying any of these stocks personally right now.
However, if you asked me right now whether or not I think you should buy a certain stock, I’d say “no” to 99% of the stocks you can name.
Those 3 belong to the 1% of stocks I’d say “yes” to.
I’ve never seen a time when it’s as difficult to find a good stock to buy without overpaying as what I see right now.
But, I don’t think that means you should be 100% in cash. I think it means you should be in stocks like:
- Cheesecake Factory (at $41 as I write this)
- Omnicom (at $73 as I write this)
- And Howden Joinery (at 412 pence as I write this)
If the market as a whole is overpriced, it will fall. And when it does fall: it will take stocks like Cheesecake, Omnicom, and Howden with it.
In time, they will recover.
And you will be able to look back – 5 years or more down the road – and say that buying stocks like these at today’s “not overpriced” levels and holding them wasn’t a mistake.
You don’t need to get out of the market.
But, you do need to be more selective than ever now that the market is more expensive than ever.