Is the stock market in a bubble
How I would invest in the stock market during the 2021 bubble
US stocks are in a bubble on the stock market, in my opinion. The signs are increasing and the alarm bells are ringing. US stocks look expensive on almost every metric. The S&P 500's market capitalization to US GDP ratio is a long-term valuation indicator popularized by Warren Buffett. He suggests that the stock market is far more expensive than it was during the tech bubble in 2000.
Another sign of a bubble in the stock market is euphoria. It is widely viewed as a state of excitement in the stock market when many stocks appear to be rising regardless of fundamentals or valuation. The euphoria on the stock market has increased in recent months as several IPOs skyrocketed.
The food delivery app DoorDash and the accommodation platform Airbnb were able to double their share prices on the first day of trading. Several more IPOs are hotly anticipated in 2021, including Robinhood, Bumble, and Coinbase.
Many US technology stocks have seen strong demand over the past decade. Share prices continued to accelerate in 2020 as the pandemic increased demand on online platforms at the expense of physical, such as. B. urban retail stores. Ultra-low interest rates and quantitative easing were also major contributors to US equities.Invest in a bubble
So if US stocks are in a bubble and are relatively overvalued, what are the best places to invest? In my opinion, it is almost impossible to know when the stock market bubble will burst. It is entirely possible that US stocks will continue to rise over the next several months.
Many US tech companies have strong business models with growing profits and recurring cash flows. The fastest growing companies can expand geographically quickly and have capital-efficient balance sheets.
As a UK investor, I would access the strongest and most innovative companies by investing in the Scottish Mortgage Investment Trust. His largest positions include Tesla, Amazon, Illumina, Tencent, and Nio. The managers are progressive and long-term in their thinking. They also have an excellent track record. This investment trust has given investors a 350% return over the past five years.When the bubble bursts
While we don't know when the stock market bubble will burst, I think it's important to be prepared. When the bubble finally bursts there are some cheaper markets I would invest in instead.
UK small-cap companies are high on my list. Many UK stocks have suffered from uncertainty over trade agreements and the UK's relationship with the European Union in recent years. Now that there is more clarity, UK stocks could see increased demand from international investors.
Small-cap companies tend to be under-researched and can offer excellent opportunities for investors willing to do a little research. Right now I see good value in Best of the Best, Saga, and Volex.
Best of the Best is an online competition company that continues to exceed management expectations. Saga targets the over-50s with insurance and travel, with the travel segment seeing significant growth after the pandemic. Volex is a high quality cable manufacturer with fast growing markets such as electric vehicles and data centers. I would consider all three for my portfolio.
The post How I would invest in the stock market during the bubble in 2021 appeared first on The Motley Fool Germany.
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Jitendra Parashar has no position in any of the stocks mentioned. It has been translated so that our German readers can take part in the discussion.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. The Motley Fool UK owns shares of and has recommended shares in Amazon, Illumina, and Tesla, and recommends the following options: long January 2022 $ 1920 calls on Amazon and short January 2022 $ 1940 calls on Amazon.
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