Investors who are heavily weighted in equities may have noticed that valuation multiples have taken off, to levels previously only seen at the height of other stock market bubbles.
The continued rise in equity prices has led to a situation where many investors continue to buy into a number of the tailwind stories such as tax cuts, economic improvement, and a potential bear market in bonds; such factors have made it difficult for many to take their money out of equities, which have traditionally earned a more significant return on capital, and put their money into investments which, all things being equal, lose money on a “real” basis (after inflation).
That being said, some of the world’s most iconic investors have continued to pile up cash, noting valuations may have gotten ahead of themselves, for even the best companies out there.
A great example of valuations which in nearly every objective fundamental way have far surpassed long-term norms is the Canadian cannabis sector. On even the most bullish metrics, this sector is more than twice as pricey as the market average, leading many to speculate that cheap liquidity and a lack of attractive alternatives may be leading us toward a significant correction in the near to medium term.
While cash is certainly not a great investment, there are a number of guaranteed investment certificate programs out there which offer interest rates higher than inflation, protecting one’s investment in the near-term.
Remember, having cash on the sidelines, or “dry powder,” in a bear market is a very valuable weapon.
Invest wisely, my friends.
