Are there parallels between the pre-2008 U.S. stock market crash
and emerging markets today?
Emerging market bulls (NYSEARCA:EDC) say that cheap market
valuations are a reason to own stocks from countries like China
(NYSEARCA:FXI), Brazil (NYSEARCA:EWZ), Russia (NYSEARCA:RSX), and
India (NYSEARCA:EPI). Are they right?
Should You Be 100% in Stocks?
A similar argument was made about U.S. stocks just before the
2008 market crash.
The January 2014 edition of the ETF Profit Strategy Newsletter
"The S&P 500's P/E ratio was just 19.42 in October 2007
compared to a frothy 29.41 in March 2000. By historical
standards, the U.S. stock market in the fall of 2007 was a
bargain compared to the stock market of 2000. But that still
didn't stop stocks from declining almost 50% over the next 18
In retrospect, people that used historically cheap P/E ratios in
2007 as a reason to buy U.S. stocks (NasdaqGM:QQQ) were badly
misguided. Will the future be any different for people who use the
same rationale as their guide?
Stock market valuations do matter, but emotion and psychology
(or what technicians call "market sentiment") plays key roles in
moving stock prices. This will always be the case so long as the
stock market has human participants.
It's also a valuable lesson for never exclusively using stock
market valuations as a strict basis for investing or not investing.
The better technique is to use valuations in conjunction with other
key fundamental and technical indicators for a more complete
Profit Strategy Newsletter
uses technical, fundamental, and sentiment analysis along with
market history and common sense to keep investors on the right side
of the market. In 2013, 70% of our weekly ETF picks were
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