SG Talk

This chart is from a stock market researcher who kept track of the data for decades.

It shows the % investors allocate to stocks (red line)
The blue line shows the average annual returns of next 10yrs. The last point for the blue graph is in 2011 as that point if for avg returns from 2011-2021.

It shows the correlation is almost perfect
1. When investors allocate a larger % of the wealth to stocks, the future average returns for stocks is lower and can go negative.

2. We are almost at all time high for allocation to stocks, I means that the nominal returns for US stocks is average -÷3% a year for next 10yrs.

3. If this correlation continues to hold, it tells us that we can get positive returns only if stocks fall much lower

The chart tells is when many people buy and are making you tube videos espousing the virtues of owning stocks it js a bad time to buy as the allocation would be very high.

I roughly knew this principle and have avoided buying US stocks jn a big way.  But still the strong correlation in the chart surprises me

Most people lose money because of psychology weaknesses. Their mind play tricks on them.

Buy low and sell high is the only principle to make money in stock market.

when a stock is expensive, sell first and then buy low.
when a stock is cheap, buy first and then sell high.

(30-01-2022, 10:12 PM)forum456 Wrote: [ -> ]Buy low and sell high is the only principle to make money in stock market.

when a stock is expensive, sell first and then buy low.
when a stock is cheap, buy first and then sell high.

Because it is hard for one to know low and high...at any point some people think market js low others think it is high.

This chart actually  show the derived relationship which can be used to determine when it is time to buy and the actual average  returns one can expect if one buys at that point in time.

they appear to be too highly correlated. do you know how credible are the source and the author?