But there are no tours — at least not yet — that introduce visitors to the region’s other signature crop: marijuana. What these insider trading criminals are doing to our free market system is nothing short of treason and a fundemental threat to our free market economy and western civilization. For the purposes of avoiding the next stock market crash, when the average P/E Ratio for stocks in the Standard and Poors 500 Index (S&P 500 Index) is above 15, it is time to pay close attention to the stock market news flow and look at other confirming indicators of a stock market top nearing (but not necessarily take any action). When it goes above 18, it is time to examine other confirming stock market top indicators closely, and consider taking action.
The thing that is tricky about the average stock market P/E Ratio valuation method is that during different eras investors are willing to pay more or less for stocks, based on other forces than just reported company earnings. For example, during periods of high growth, investors may be willing to buy stocks even when the average stock market P/E Ratio is well above 15, because the earnings growth outlook is so good that they assume the earnings part of the equation will catch up to the price part of the equation. This is just a sampling of the many advanced stock market valuation methods that are available for review.
Of course, earnings expectations can be and often are wrong, especially when the economy goes from growth to recession, so it is important to also look at the advanced stock market valuation methods outlined in the following section to get a sense as to whether the risk of a stock market crash is high and defensive moves may be warranted. I put some money into a mutual fund around the last stock market bottom in March 2009, and it has done quite well.
The following are some advanced stock market valuation methods that should be considered when evaluating whether the stock market is overvalued and whether the potential for a stock market crash is high. Investor Sentiment is a reading of how many investors are bearish (think the stock market will decline) versus how many investors are bullish (think the stock market will increase). Market bottoms and tops have historically been marked by excessively bearish investor sentiment (bottoms) and excessively bullish investor sentiment (tops). When Investor Sentiment is excessively bullish, it is time to consider whether a stock market crash may be looming.
The Ratio of Total Market Cap (TMC) Relative to the United States Gross Domestic Product (GDP) is stock market valuation gauge that is one of the best indicators of whether the stock market is undervalued or overvalued at any given point in time. To calculate this ratio, you simply take the total market capitalization of the all the stocks in the stock market and divide it by the latest reported total GDP for the United States. This ratio is also known as the Total Market Cap to Gross Domestic Product (TMC:GDP) Ratio.