Jorgen ViK: Humility helps keep stock mood in perspective – The Daily Progress

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Have you seen how high stock prices are right now?

When stock prices keep going up, it’s easy to view them as in unchartered territory. But remember that prices at or near all-time highs have happened a lot over the past century as the Dow Jones Industrial Average zig-zagged its way from below 100 to past 34,000.

All-time highs, historically, actually are pretty common.

I’m not saying investors don’t get carried away sometimes. I think they do.

But be careful thinking you’re spotting irrational exuberance just because we’re at all-time highs.

This is where a little humility can be helpful.

I mean, how much do you really know about the inner workings of a company whose share price you consider “too high?”

Do you know its debt ratio? Did you study its most recent income statement?

So could it be the person who’s willing to pay a certain price today knows at least every bit as much as you know?

I think it’s prudent to assume so.

Maybe the price is right based on what we know in total.

Maybe stocks are reasonably priced because of TINA (There Is No Alternative). That is, have you seen interest rates lately? 30-year rates around 2% and savings accounts rates visible only through a microscope.

Maybe price-to-earnings ratios are high but will remain so.

Maybe earnings will grow over the next several years, and sort of grow into their valuations.

Just because stock prices are flirting with all-time highs does not mean that an investor with a multi-year time horizon should sell.

I encourage you to set the near-term worries aside and accept that stock prices can be hard to explain, but that they should, over the longer term, reflect the profitability of companies in aggregate.

Good luck.

Jorgen Vik is a certified financial planner and partner with SKV Group LLC.

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