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a robert schiller piece about what's going on in the markets we're going to look at some of the incredible research that he's done and keep this in mind if you don't know who robert schiller is just remember this this guy is so famous that he has indices basically that everybody uses named after himself have you ever heard of like the schiller index for home prices yeah that's this guy he's got like an index for everything he is a famous yale economist who's written books like irrational exuberance a phrase phrase popularized by alan greenspan who is the former chairman of the federal reserve and like six other incredibly powerful books basically this guy is like an economic genius now whether or not he's right going forward i guess time will tell but he's been pretty solid so far so let's see what he has to say he has a pretty thorough piece uh in the new york times today which i know everybody's not super jazzed about the new york times but this this is by him so it doesn't really matter where it is okay uh in the meantime though remember es expire and of course a so robert schiller says that right now stocks are trading at very high levels and even though a crash may not occur uncertainty levels are very high last week i brought to you the chart of the well volatility index the vix and uh you know things are a little uh uncertain to say the least right now relative to the past 10 years and in some cases those could be great times to buy but then on the other hand a lot of us are worried about what about valuations well in this piece robert schiller wrote that he created some new indexes he's got these endless ways of tracking things and basically what he does is he randomly surveys high income individual investors and institutional investors in the united states and he tracks their moods on sort of a month-to-month basis well the first index that he talks about is something known as the shiller crash index and then we're going to talk about the shiller evaluation index and then we'll talk about the sheller p e index all these things just like they might sound overwhelming at first but we're going to tie this all together here so let's make this simple and keep it easy here because i think we we all want to pay attention to what professionals like this think so uh all right before i show you this let me tell you really quick what to expect in this chart because otherwise it's not gonna make sense it's because it's kind of like the opposite of the op it's weird it's like trying to understand a double negative so in this first chart which is the the first chart that we're going to look at is the shiller crash index in this first one a low number is bad a high number is good so when the chart's going up that's good when the chart's going down that's bad it's kind of like the opposite of what you would think and the way this chart works is basically they take a six month average of investors who think the likelihood of a crash is under 10 yeah like ah that's it's complicated so a low number means that only the percentage of people on the chart think that a crash is less likely than 10 so just so we can picture this going into it if the number on the chart is 40 that means 40 of people think that a crash is less than 10 likely and 60 of people think it's more than 10 percent likely and then obviously diverges from there so low is bad and worse well let's go ahead and pull up the chart and see where we stand now okay here it is the u.s crash confidence index so i'm going to point out the uh september of 2008 reading first institutional investors were at 35 u.s individual investors were at 25.8 so that means at this point right here the average and it's a six-month average so it takes a while for it to actually trend down right because it's a it's an average uh but anyway six month average here in september of 2008 which was like literally the month of the crash right and then people got more and more concerned that there was going to be a double dip but anyway the six month average here was that 35 of institutional investors thought that the chances of a crash were less than 10 percent that means 65 percent of people thought no crash is more than 10 likely well that was 2008.
compare that to where we are now which i took another screenshot over here we are at 24 of institutional investors think a crash is less than 10 likely and only 15 of individual investors high net worth individual investors think that a crash is less than 10 likely this means the vast vast majority of investors like the highest number we have i mean look at this chart we're we are at the lowest number that we have which the lowest number on the chart means the highest number of people since this chart well it was pictured here going back to 2005 and even when i zoom out past then we are at the highest number of investor non-confidence or a lack of investor confidence basically the most people ever in this survey think that a ch the chance of a crash is more than 10 percent likely okay so so that's one of robert schiller's charts let's go ahead and talk about the next one so another indicator that he looks at is something called evaluation confidence index and for many of you following me during this pandemic you already know that i've shied away from buying individual stocks heavily since about august in august i see you know august was kind of the month where it was like everything was just like up 10 10 10 10 it was insane and then in september we had that pullback right uh and in august i stopped buying individually and like it's kind of it's going a little cuckoo here uh and i pulled back even a bit in september to pay off some margin just to be a little bit safer and now i'm mostly just trickling into a broader portfolio of about 4142 stocks you could see those by going to metcalfon.com 1337 v12 we're at v12 i know those stocks i'm doing that on purpose because i don't want to be super exposed to one individual stock though these do lean tech heavy in fairness so it's not like it's really protected against a tech sell-off but anyway i'm doing this because right now i do feel that valuations are a little bit lofty that's my pov but let's see how my opinion compares to this valuation confidence index oh by the way that yes remember you can also check out that money and stock course down below but that coupon code does expire today today's the 25th so for the real estate investing course the money in stock course property management youtube course all of them check them out you can even kay so schiller says that his valuation index asks people whether or not the market is too low too high about right or i don't know and the index tells us the percentage of people who think the market is not overpriced okay so basically a higher number on this chart is good this is usually what we're used to i mean not in every scenario but oftentimes we usually think oh cool the number on the chart is high that's good right again not always for all charts but this is going back to that thinking so in this case a higher number is good it means more people think that now is a good time to buy well let's actually pull up the chart here and let's see where we are right now so on the us valuation confidence index i'm going to hide myself for a second so we could see right before the dot-com bubble there we could see that on this chart we are at the lowest point that we have ever been in with the exception of the dot-com bubble and the only other real low point right before that was kind of going into this little crash that we had here between 2008 you know 17 and 18 and that's when the feds started raising rates so it's kind of like interest rates were starting to shoot up and then the fed's like okay maybe we need to start talking about raising rates and and so that uh reduced people's confidence and valuations because if rates go up usually in the short term we see stocks fall a little bit but we have not seen a low point like this since we were at the dot-com bubble over here that's not so good not so good at all so uh definitely a lot of shaky and not very confident investors right now that doesn't mean that we're definitely going to have a crash and i personally tend to be a little bit more bullish than i am bearish i'm more optimistic about the market but you know i also don't want to be blind i try to look at what else is happening in the market you know this isn't great uh so let's look at another one the last one that we have is the schiller p e ratio then we're going to try to tie this all together so this one you know out of the last two charts there i i like those charts and i agree with them this one i just want to clarify because it comes up time and time again i personally do not agree with the way the schiller p e ratio operates basically what this does is it says a higher number is bad so right now we're paying you know 31.69 times earnings based on the shiller p e ratio the way this works is they take all of the money that companies make over a 10-year period and they look at the average earnings so the earnings per share of all of these companies that are in the s p 500 and they they create an average so they're dividing them all into each other right and they adjust all of these numbers per inflation and basically the as earnings go down the ratio goes up and if price goes up and earnings go down then the number goes up even more so basically the higher it goes the worse it is we don't want it to go higher but it is high it's pretty high you know the first last time it was this high beforehand was right before the dot-com bubble and then we had you know a high point over here we had uh you know relative high point here before the 2008.
uh you know we've got the crash here going back to the great depression so we're at you know also a high point here this one is a little bit more problematic though i i don't love this chart as much well yeah i mean it doesn't look too good if we just look at it sort of zoomed out but this this chart also comes with some problems uh there are two main issues that come up when we talk about the basically the schiller p e ratio which is what we've got going on here because we're in this weird pandemic what's really happened is earnings at traditional companies have fallen because of the pandemic right and that makes a lot of sense uh but tech is leading the s p to go higher but when we look at tech earnings they're really low because those companies tend to reinvest a lot of their money you know it's almost like we have this shift to tech and when you have a big industry shift the shiller p e ratio can also fall so those two things create problems but let's be real here if we zoom out a little bit yeah it's scary times in fact schiller says we all need to be you know really worried about the potential for a violent election protests and chaos in a surge in covid cases and sergey kovet cases is already happening so right now schiller ends up saying that we are at a crossroads and the way we talk about schiller by the way and i don't know maybe maybe i shouldn't say this but the way we talk about chiller and don't tell anybody has said this but i feel like we kind of like revere this guy like he's dead you know it's almost like you get more famous after you're dead uh like but the guy's still alive so he wrote this stuff right this is his opinion his his wording and i threw it it's all the way on the other side of the room right now i can't get it right now but his wording was that we should be cautious right now that we are at a crossroads he thinks that investing in the market is a quote adventure but this adventure is vulnerable and shiller therefore recommends just be careful which is interesting because this is also what howard marx said in a video that i broke down last week now i'm not gonna run out and panic sell all my stuff but this is personally tough for me because i love investing when the market is red i bought in the market three times last week over the last couple months i've purposely tried buying on red days trump gets diagnosed with covet i'm buying trump says oh no stimulus no problem i'm buying like whatever like i love those opportunities but there's the potential for some chest pain coming up here i mean we if we bond in the last few weeks there's the potential we might be upside down for the next couple months or more in the long run i think we're okay to buy on these red days but you know i want to put that warning out there i mean i think howard marks and robert chiller they're they're smart people and these are things to be cautious of i also believe that generally will probably have more certainty once the election happens because we'll know a lot more about okay what's the future of our country going to look like but the reality is schiller's right we can have a contested election what if vaccines fail what if we don't get stimulus until next year and then we hit the end of the year cliffs which the end of the year cliffs i was just talking about this the other day we got three cliffs coming up the three cliffs we have i've got it written down right here here are the three cliffs we have we've got unemployed pay for self-employment workers ends on the 31st the eviction moratorium ends on the 31st and student loan deferrals end on the 31st that's bad you know three fiscal three types of cliffs for various different people in our country coming up along with all this uncertainty so look at at this point all i gotta say is stay low on the risk stay low on debt uh probably keep investing in the market as long as you're not overly indebted but in the meantime what do you think are you getting your life insurance and your three free stocks and using that coupon code i hope you are but i really want to know what you think this is the perspective from robert schiller let me know what you think about his charts and my commentary on them folks thank you so much for watching and i guess we'll see in the next video
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