Stock market prices are seen low by institutional investors and market makers

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Investment thesis

The reason why individual DIY [DIY] investors do poorly with equity investments is that many (most?) of them only pay attention at the wrong time, selling when prices are depressed and buying when it looks like the ” good” become more expensive without them (Fear of Missing Out).

If do-it-yourselfers can control their emotions to change, now is the time to change those practices and follow the instincts (and experiences) of professionals.

What do investment professionals expect today?

Every market day since the start of this Y2K century over 20 years ago, we have carefully and thoroughly examined the impact on stock markets imposed by the actions of the pros. Being close to transaction centers and in continuous active contact with daily transactions and information flows, their expectations tend to be more profitable than not. Their companies tend to employ the most educated, knowledgeable and motivated market players.

Their investment stocks indicate what their expectations are for future stock prices over the next few months. This is what we rely on when questions arise about the current “market” price.

Yesterday’s (6/16/2022) valuation of over 3,000 actively traded and widely held stocks, ETFs, REITs and indices is instructive as it indicates that stock markets are at a relatively low level and average levels reward versus risk seem attractive for additional capital investment.

Here’s what they look like on a continuum of reward/risk ratios.

The scale at the bottom of the image is of this percentage of the full range of price expectations who is at inconvenience, between the current market price and the lower limit of the forecast. The advantage is the complement (or 100% minus the scale%) of the disadvantage. Examples appear in the bullet points above.

Figure 1

Market Profile of Reward-Risk Ratios

Used with permission

The small square white blocks on the right side of the bottom ladder are individual titles and stacked on top of each other in columns they form the rest of the image.

No, that tower on the far left isn’t a border frame for the image, it’s the white blocks of over 115 titles so depressed in price relative to forecast pro expectations that they’re falling off the mark. far left of the scale. Can you say “scream cheap?”

Now, is this a staggering picture of opportunity, or just another bait to depress DIY investors into thinking things could get even worse? Figure 2 offers some earlier extremes.

Figure 2

extreme profiles

(used with permission)

The forecast dates in these distributions are 06/27/2016 for the market bottom and July 2007 for the market top.

Today’s market profile is clearly a set of more extreme price recovery expectations than in 2016, when the market price of the S&P 500 Index ETF (SPY) rose from just under 200 to a high of 477 at the end of 2021.


The difference between forecast reward-risk market metrics and historical past metrics is in their forecast horizons. The market profile relies on derivatives that look only a few months into the future, which provides benefits through repeated actions. Historical stock index measurements can only act as an afterthought confirmation of a longer ongoing growth trend, if such is the case. The ability to avoid long-term capital losses is lost, as the time consumed is never replaceable.

Passive buy-and-hold investors can take comfort in these hindsight assurances, but are victims of whatever happens, while active investors have the advantage of matching their actions to the most productive prices. subsequent results. In the more unstable environment of this century, guided flexibility can produce substantial wealth building.

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