Should You Invest When The Market Appears To Be Overvalued?

As I compose this article, the Dow Jones Industrial Average (DJIA) index:

is approaching the 25,000 milestone;

is up ~2% for the month of December 2017;

has experienced 9 straight monthly increases which represents its longest streak of monthly gains in nearly 59 years;

is on track to rise more than 25% YTD ;

recently notched its 70th record close in 2017.

and the S&P 500 index:

is up ~1.4% in December 2017;

on track for its 9th straight monthly increase which is the longest since April 1983;

has posted positive monthly returns, including dividends, for all 11 months of 2017; this could become 12 months if it continues at its torrid pace.

In addition, the market has experienced an extraordinary lack of volatility in 2017. In fact the Cboe Volatility Index (VIX Index), which is a leading measure of market expectations of near-term volatility conveyed by S&P 500 Index (SPX) option prices, is at its lowest level in years.

This has many investors on edge and wondering whether they should invest when the market appears to be overvalued.

In this post I put forth my reasons why investors should tune out the noise and continue to invest despite current market conditions.

This does not mean I advocate investing in anything and everything and at any price. That would just not be prudent. What I suggest is that investors do their homework, remain disciplined, and focus on the long-term goals and objectives they want to achieve from equity investing.

Tune Out the Noise

Sometimes investors can be their own worst enemy. Do you fall in the camp where you must check the value of your equity holdings several times a day? Do you constantly listen to the media which bombards investors with play by play reports on what is happening in the business world?

If you are, I strongly suggest you stop. NOW.

Tune Out The Noise

As an investor you should view yourself as a part owner of a business. Business owners do not sell their business on a whim. They invest for the long-term and know that their business will go through various economic cycles.

Warren Buffett and Charlie Munger are arguably two of the world’s most successful investors. When they invest in a business for their personal portfolios or for Berkshire Hathaway, they invest for the long-term. If this strategy works for them it should most certainly work for you.

Readers interested in knowing how these gentlemen invest would be wise to read 107 Profound Warren Buffett Quotes: Learn To Build Wealth. Pay particularly close attention to the section in which 11 long-term investing quotes from Warren Buffett are provided. In none of these quotes will you get any indication that you should jump in and out of a company’s stock.

Your best bet as an investor is to tune out the noise. Identify companies with strong competitive advantages which are priced at attractive or fair values, invest in them for the long-term, and disregard stock price gyrations. If you have trouble leaving your investments alone you may want to get some tips on How to Stop Paying Attention to Your Stocks.

In a nutshell, you want your investment experience to be boring. There are enough other areas in your life where you can seek excitement.

Invest for the Long-Term

I do not foresee a recession on the horizon but I have this nagging suspicion we will experience a market correction of some magnitude. I just don’t know when it will occur and I strongly suspect nobody else does either! In my recent 12 Lessons I Learned From Black Monday article I wrote about how sudden, unexpected, and swift investor sentiment can change.