You would be an ignorant if you don't believe in the next systemic crash coming up. But you never know when or how big it will be. This is why I like penny stock strategies so much, where I don't have to care about the market. So this post is not really about penny stocks, but the Largecap trend will also affect the Russell 2000 index if there is a systemic crash.
If you have a large chunk of money then you need to keep them some place "safe". I don't need more than $50.000 to trade penny stocks. So what about the rest of my money, where to put them? I place them in business, real estate and commodities or companies with good dividends. I love passive income more than I love trading penny stocks. Trading penny stocks is just another job. When I say job I simply mean something that takes my time. A job can be very satisfying and enjoyable. I've been working as a soldier for 8 years, and that is a lot of fun, but it is still a job, since it requires I invest my time to get paid.
Investing for cash flow instead of capital growth gives you the real freedom to do whatever you want, when you want, for whatever how long time you want. If I want to sail around the world by boat for two years, then I need passive income from my investments and I need to delta hedge so I can sleep at night.
I don't know if you know the Bandwagon effect? It's shortly about following the crowd believing what others tell you to do or think will happen. That is kind of what I see happens when people are investing for capital growth. Buy and hold long term.. I rather call that strategy "Buy and Hope". And as you all know, "Hope is not a strategy".
If I look at the P/E ratio 500 index, that is what I see on the graph. And of cause I have in mind that people buy more because money at the moment is almost free. But when people pay $31 and only get 3% ROI, it's almost like they are paying extra for buying, because after taxes and inflation, there is actually nothing left to themselves. So the only way left to profit from their investments is to sell their portfolio. They are not counting on the dividends. Only on capital growth.
So if people buying today wants to profit from their investments, they have to sell their portfolio at some time. People who bought their investments back in 2009 - 2012 also wants to get most out of their investments as possible. So when people start to see reversal in the markets, and the Bandwagon Effect starts a downtrend kickoff from media and other famous people, this is where we will see the market dropping fast like in 2008 and 2000. People want to get out to profit. As a property investor myself, I have in mind that it could affect the property market world wide as well and that is why I rather invest for cash flow and be ready to buy in when others are selling because of panic.
Also having in mind that people were willing to pay at this price only once before in the past 120+ years.
And also if you believe in the means of the past, the P/E Ratio should drop back to its median at 16. As you see from the crash in 2008 it went down to the median. But potentially we could see it drop down to 5 before coming back up.
Take a look at the PE ratio 500 index http://www.multpl.com/shiller-pe/