A structured qualitative scan to tell you whether the market is in a risky or opportunity-rich state. For each pair, check off the one you think is most descriptive of today. If you find that most of your checkmarks are in the left-hand column, hold onto your wallet.
| Pair | Description |
|---|---|
| Economy | Vibrant/Sluggish |
| Outlook | Positive/Negative |
| Lenders | Eager/Reticent |
| Capital markets | Loose/Tight |
| Capital | Plentiful/Scarce |
| Terms | Easy/Restrictive |
| Interest Rates | Low/High |
| Spreads | Narrow/Wide |
| Investors | Optimistic/Pessimistic Saguine/Distressed Eager to buy/Uninterested in buying |
| Asset Owners | Happy to hold/Rushing for the exits |
| Sellers | Few/Many |
| Markets | Crowded/Starved for attention |
| Funds | Hard to gain entry/Open to anyone New ones daily/Only the best can raise money General partners hold all the cards/Limited Partners have bargaining power |
| Recent Performance | Strong/Weak |
| Asset Prices | High/Low |
| Prospective returns | Low/High |
| Risk | High/Low |
| Popular Qualities | Aggressiveness Broad Reach / Caution and Discipline Selectivity |
Connections
Overpriced ≠ Going Down Tomorrow
Link Explanation: The above exercise is meant to provide a temperature check on whether the market is overpriced or underpriced. However, we know from the linked note that this does not mean it is going down tomorrow. In fact, it could continue rising for years. The implication is that investors should either commit to a DCA strategy of always being in the market, or hold off, with the understanding that they may be missing out on some gains.
Reference
🟢 The Most Important Thing Uncommon Sense for the Thoughtful Investor