Passive investing, as promoted by the Monday Morning Millionaire Program (15.5% annual return since 2012), does not need or use economic indicators. While proponents of both passive investing and active investing can produce studies to support their position, there is no question about their respective time requirements. 82% of Monday Morning members spend an average of one hour per week or less on their portfolios. By way of contrast, a few years ago, Goldman Sachs reduced (that says “reduced”) interns’ maximum working time to 17 hours per day!
However, many do enjoy active investing. We recommend that they expose a small part of their portfolios to active investing and call it their “fun” portfolios. My “fun” portfolio adds up to 5% of my holdings. It constantly validates passive investing.
Active investors use a large number of economic indicators to predict market movements and we will explore these in the coming weeks.
Today, we will look at Warren Buffett’s favorite, the total stock market capitalization of all U.S. stocks divided by the U.S. gross domestic product. In other words, SMC divided by GDP = market valuation.You need to login to view the rest of the content. Please Login. Not a Member? You can now sign up for a one-month free trial membership. Join Us