Seeing Both Sides of the Market Debate

Stocks have been on an absolute tear since they bottomed out in 2009:

But since the market peaked in early 2000, U.S. stocks haven’t really done much for investors as we’ve gone through a series of booms and busts:

On the other hand, interest rates around the globe are at historically low levels:

Nevertheless, it’s hard to say that these return numbers from global markets suggest a worldwide bubble gone mad (via Capital Speculator):

However, stock market valuations are above average in most of the large developed market countries around the globe (via @CAPE_invest):

Having said that, valuations may not be as stretched as they appear compared to the subdued inflation rates in developed countries:

It’s also worth remembering that the Fed will have to raise rates in the future, possibly before the end of 2015:

Which could mean the end for a 30+ year bond bull market:

Yet historically bond market “bubbles” are not the same thing as a stock market bubble.

Many think we’re in another stock bubble because equity ownership is now back to the 2007 peak:

In spite of this data, you could make an argument for people holding more stocks in their portfolios for the simple fact that people are living longer than ever, so maybe they need more stocks to grow their money in retirement:

All of which is to say…the markets are confusing.

You could play point-counterpoint all day long with any piece of market data. The trick is to always see both sides of the debate before making a big decision. Even with access to more information than we know what to do with, some investors are still able to focus exclusively on only those facts that back up their current line of thinking. The Internet may be the biggest source of deflation ever invented, but it’s also the biggest source of inflation for people’s confirmation bias.

You could pick any single data point that aligns with your current positioning and build your narrative around it to make yourself feel better about your investment stance. But unless you’re able to see all sides of a debate you’ll never be able to make rational decisions when it comes to the markets. There’s something to be said for nuance, perspective and context when it comes to analyzing complex systems such as the markets.

The other lesson here is the markets are never easy. As Charlie Munger once said, “It’s not supposed to be easy. Anyone who finds it easy is stupid.”

Further Reading:
How to Win Any Argument About the Markets
Perma-Arguments