However, that doesn’t necessarily mean we are shying away from growth stocks. After all, one of our most popular investment strategy’s objective is to hold stocks we believe will provide the best opportunity for capital appreciation. But we also think that we can find value within growth stocks. That is why stock selection is so critical right now in the current market environment.
This amazing market run recently has left many investors thinking that it is just too overheated right now and good investment opportunities are few and far between, so they would rather cash out and wait until something happens that causes the market to crash before putting that money back to work. We at Greystone would argue this should not be the mindset to have, and trying to time the market rarely works out in the investor’s favor. Quality investment opportunities are in fact still out there, and if proper research is done, which is what our clients trust us to do, cash will benefit more from being in the game rather than sitting on the sideline. The Greystone team is constantly monitoring market indicators and if we see a reason to increase our cash position, we will do so without hesitation. However, at this time, there is not a significant reason to be missing out on the benefit that this soaring market is providing.
A typical investor might look at the S&P 500 index and select a valuation metric such as the price-to-earnings ratio to see how expensive the market is. If they did so, they could be misled by the results. This is because the top 10 stocks in the S&P 500 currently contribute to over 27% of the weight of the index. The average P/E ratio of those 10 stocks is 30.1. The average P/E ratio of the remaining 494 stocks is 19.6. Therefore, you can see how a snapshot of this index isn’t exactly the best representation of the valuation of the U.S. market as a whole. The point is, while yes, the market in general is expensive right now, there are still plenty of places to put your money that can provide decent value.