Bargain hunting in an expensive market: What do you do when everything looks too pricey?

Valuations alone may not be enough

clock • 4 min read

You'd be hard pressed to claim that equities are cheap these days. Most indicators used to measure the "expensiveness" of stocks deliver the same verdict – namely that both in absolute terms and compared to their historical average, equities are quite pricey today.

Bullish investors may, of course, argue that with interest rates still at extremely low levels, the dividend yields on offer are high enough to keep equities fairly attractive. There are two problems with this, though. For one thing, using just that one yardstick, commonly referred to as the "risk premium", brings you dangerously close to confirmation bias - a widespread mindset that consists of focusing solely on data that support what you already believe. For another, and more to the point, the risk premium seems to be shrinking now that interest rates are heading back upwards on th...

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