We’re at a point where valuations of swathes of the stock market here and elsewhere are frighteningly high in comparison with long-term average measures.
The price of government bonds issued by Britain, Germany and the United States may have fallen in recent weeks, but their yields remain as negligible as a few months ago.
Sky-high valuations are in themselves worrying enough, but they come at a time when the economic outlook is uncertain at best.
The ability of many British companies to maintain dividends – arguably one of the main reasons for driving their share prices to such heights – has rarely been less secure.
So it is quite natural to give time to those who cry doom.
One is Bill Bonner, an American-based financial author and publisher, and founder of the blog The Daily Reckoning, who wrote in recent days:
“The crisis will move too fast for policymakers and investors. Stock investors will tell themselves they will get out, but when a real panic starts, it’s too late.
“A rerun of the panic of 2008 could erase $30 trillion in a few weeks. If the panic is caused by rising inflation, the bond market would be walloped, too. Our advice: panic now, before everyone else. Evacuate overpriced and dangerous assets.”
That sounds terrifying.
I get the argument, but I for one will not sell any of my share-based investments in my Isa and pension on the strength of it. Here are three reasons why.
1. When would I buy again?
Say I heed Mr Bonner and sell. Sitting in my broker accounts is then a pile of cash, earning nothing, and waiting for … what?
The graph below tells a familiar story but one worth revisiting. The danger of not being in the market is that you miss those significant, but sometimes brief, bounces.