The 4 stages of a stock market. And where we are now. 2


I was reading a very interesting article today which was written by Dr Steve Sjuggerud.This article really caught my attention as I have been thinking lately of getting out of the market (more articles to follow on this). Dr Sjuggered puts out a very fascinating theory that the stock market has four states. And knowing what state we currently are in will aid me in deciding on wether to stay in or get out of the market.

According to the article, here are the four states of the stock market:

  1. Stocks are relatively cheap and are going up
  2. Stocks are expensive and are still going up.
  3. Stocks are Cheap but going down.
  4. Stocks are expensive and going down.

When looking at the above four stages, the best is obviously 1, followed by 2, then 3 and 4 is the worst.

 

As the article was written for the US audience, the author writes that he sees that the US market is in the second best of the four  – expensive but still going up. The big concern is that if the trend switches to going down, then we enter the worst state of the market – expensive and going down. (The bad news is you could flip from one of the better states right now, which is what we’re in – expensive and going up – to expensive and going down.)

So in what stage are we here in the UK. I believe that in the UK, the FTSE is still in stage 1 but fast approaching stage 2. The FTSE is still relatively cheap compared to most stock markets worldwide and still has huge potential of going upwards. The P/E of the FTSE is still only 16 (historical average of 15) compared to a very high figure of 29 found in US stock market indices.

I have managed to gather data from a wide array of stock markets in different countries and have put them in one of the four states below:

  1. Cheap and Are Going Up
    • Singapore
    • Australia
    • UK
    • China
    • India
    • Brazil
    • Korea
    • Indonesia
    • Japan
  2. Expensive but Are Still Going Up
    • USA
    • Mexico
    • Germany?
    • Switzerland
  3. Cheap but Are Still Going Down
    • Russia – This one is tricky. I could have easily put Russia in stage 1 above as well. No one knows were Russia is going but I personally feel that buying into Russian stocks will be good in the long-run.

 

I still think that one of the best stock markets to invest in is Japan. See my reasons here . Alternatively, if you want to buy stocks on the FTSE see this article on the best buy and hold stocks picked by the leading fund managers.

 

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