http://profitableinvestingtips.com/options-trading/is-this-going-to-be-a-painful-correction-for-unwary-investors Is This Going to Be a Painful Correction for Unwary Investors? If you have ridden the bull market to higher and higher levels, is it time to take a little off the table and realize profits? The old saying is, by the way, that you do not have a profit until you take a profit. Is this going to be a painful correction for unwary investors? Market Watch notes one warning indicator which says that serious pain awaits investors. One of those measures, in particular, has popped up on investor radars lately, and that’s the “Buffett indicator.” The Berkshire BRK.A, +2.83% boss called it “the best single measure of where valuations stand at any given moment.” If historical patterns hold true, a thrashing could be in store for complacent investors. Put simply, the indicator is the total market cap of all U.S. stocks relative to the country’s GDP. When it’s in the 70% to 80% range, it’s time to throw cash at the market. When it moves well above 100%, it’s time to lean toward risk-off. Where’s it now? Approaching 140% and a new record high. A successful long term investor like Buffett relies on the strength of the US economy to drive up the value of his investments. Using intrinsic value as a guide, value investors buy stocks that they understand and stocks that are underpriced in relation to expected long term earnings. Those long term earnings are usually tied to the strength of the US economy. When the value of all US stocks grossly exceeds the value of the US economy, a painful correction is in store. How Painful Might a Correction Be? The last two times the total market cap of all stocks grew above the US gross domestic product, the end results were the 2008 stock market crash and the dot com crash. In each case, the losses were huge. The dot com crash erased about $6 Trillion in value. The 2008 financial crash erased closer to $14 Trillion. In the 2008 crash the S&P 500 was cut in half before it started to rise again.

1. By www.ProfitableInvestingTips.com

2. If you have ridden the bull market to higher
and higher levels, is it time to take a little off
the table and realize profits?
http://profitableinvestingtips.com/options-trading/is-this-going-to-be-a-painful-correction-for-unwary-investors

3. The old saying is, by the way, that you do not
have a profit until you take a profit.
http://profitableinvestingtips.com/options-trading/is-this-going-to-be-a-painful-correction-for-unwary-investors

4. Is this going to be a painful correction for
unwary investors?
http://profitableinvestingtips.com/options-trading/is-this-going-to-be-a-painful-correction-for-unwary-investors

5. Market Watchnotes one warning indicator
which says that serious pain awaits investors.
http://profitableinvestingtips.com/options-trading/is-this-going-to-be-a-painful-correction-for-unwary-investors

6. One of those measures, in particular, has
popped up on investor radars lately, and that’s
the “Buffett indicator.”
http://profitableinvestingtips.com/options-trading/is-this-going-to-be-a-painful-correction-for-unwary-investors

7. The Berkshire BRK.A, +2.83% boss called it
“the best single measure of where valuations
stand at any given moment.”
http://profitableinvestingtips.com/options-trading/is-this-going-to-be-a-painful-correction-for-unwary-investors

8. If historical patterns hold true, a thrashing
could be in store for complacent investors.
http://profitableinvestingtips.com/options-trading/is-this-going-to-be-a-painful-correction-for-unwary-investors

9. Put simply, the indicator is the total market
cap of all U.S. stocks relative to the country’s
GDP.
http://profitableinvestingtips.com/options-trading/is-this-going-to-be-a-painful-correction-for-unwary-investors

10. When it’s in the 70% to 80% range, it’s time to
throw cash at the market.
http://profitableinvestingtips.com/options-trading/is-this-going-to-be-a-painful-correction-for-unwary-investors

11. When it moves well above 100%, it’s time to
lean toward risk-off.
http://profitableinvestingtips.com/options-trading/is-this-going-to-be-a-painful-correction-for-unwary-investors

12. Where’s it now? Approaching 140% and a new
record high.
http://profitableinvestingtips.com/options-trading/is-this-going-to-be-a-painful-correction-for-unwary-investors

13. A successful long term investor like Buffett
relies on the strength of the US economy to
drive up the value of his investments.
http://profitableinvestingtips.com/options-trading/is-this-going-to-be-a-painful-correction-for-unwary-investors

14. Using intrinsic value as a guide, value
investors buy stocks that they understand and
stocks that are underpriced in relation to
expected long term earnings.
http://profitableinvestingtips.com/options-trading/is-this-going-to-be-a-painful-correction-for-unwary-investors

15. Those long term earnings are usually tied to
the strength of the US economy.
http://profitableinvestingtips.com/options-trading/is-this-going-to-be-a-painful-correction-for-unwary-investors

16. When the value of all US stocks grossly
exceeds the value of the US economy, a
painful correction is in store.
http://profitableinvestingtips.com/options-trading/is-this-going-to-be-a-painful-correction-for-unwary-investors

17. How Painful Might a Correction
Be?
http://profitableinvestingtips.com/options-trading/is-this-going-to-be-a-painful-correction-for-unwary-investors

18. The last two times the total market cap of all
stocks grew above the US gross domestic
product, the end results were the 2008 stock
market crash and the dot com crash.
http://profitableinvestingtips.com/options-trading/is-this-going-to-be-a-painful-correction-for-unwary-investors

19. In each case, the losses were huge. The dot
com crash erased about $6 Trillion in value.
http://profitableinvestingtips.com/options-trading/is-this-going-to-be-a-painful-correction-for-unwary-investors

20. The 2008 financial crash erased closer to $14
Trillion.
http://profitableinvestingtips.com/options-trading/is-this-going-to-be-a-painful-correction-for-unwary-investors

21. In the 2008 crash the S&P 500 was cut in half
before it started to rise again.
http://profitableinvestingtips.com/options-trading/is-this-going-to-be-a-painful-correction-for-unwary-investors

22. Benefiting from a Market
Correction
http://profitableinvestingtips.com/options-trading/is-this-going-to-be-a-painful-correction-for-unwary-investors

23. All of that having been said, not everyone lost
money in the dot com and 2008 market
crashes.
http://profitableinvestingtips.com/options-trading/is-this-going-to-be-a-painful-correction-for-unwary-investors

24. Those who had the foresight to buy puts on
their big winners walked away with their
profits (minus the cost of the option
contracts).
http://profitableinvestingtips.com/options-trading/is-this-going-to-be-a-painful-correction-for-unwary-investors

25. Those who simply purchased puts on the most
vulnerable stocks made out like bandits and
are probably sipping rum drinks and lounging
by their pools on their own tropical islands.
http://profitableinvestingtips.com/options-trading/is-this-going-to-be-a-painful-correction-for-unwary-investors

26. Timing a Market Correction
http://profitableinvestingtips.com/options-trading/is-this-going-to-be-a-painful-correction-for-unwary-investors

27. Because perfect market timing is impossible, it
can be really difficult to decide when to get
out and when to stay in.
http://profitableinvestingtips.com/options-trading/is-this-going-to-be-a-painful-correction-for-unwary-investors

28. This is where options are useful because, for a
small insurance fee (the premium) one
can protect an investment portfolio or nail
down a selling price throughout the duration
of the options contract.
http://profitableinvestingtips.com/options-trading/is-this-going-to-be-a-painful-correction-for-unwary-investors

29. All of this you can do for simply the premium
paid for the contract.
http://profitableinvestingtips.com/options-trading/is-this-going-to-be-a-painful-correction-for-unwary-investors

30. The leverage that options trading offers can
result in spectacular profits when other
unwary investors are losing their shirts.
http://profitableinvestingtips.com/options-trading/is-this-going-to-be-a-painful-correction-for-unwary-investors