Quarterly Conversations – Third Quarter Investor Outlook

Featuring: P.J. Gardner

In this video, AGW Principal & Co-Founder P.J. Gardner, CFA®, CFP®, discusses the current market valuation and whether or not investors are being too optimistic. This conversation was recorded on August 7, 2023, and reflects information available at that time.

Audio Only


  • The difference between investor sentiment and market valuation
  • The importance of diversification
  • The role of active management
  • The risks of passive investing
  • The importance of staying disciplined

Full Transcript

A wildcard in any market is investor psychology. You just don’t know how far investors will push stocks in either direction. And usually, they overdo it. So they overshoot on the upside, pushing stock prices beyond what their valuations really should be. And then they usually oversell on the downside, giving investors tremendous opportunities to buy low.

It’s interesting to say, where are we today in investor psychology? And I’d say much like the allegory that Ben Graham, Warren Buffett’s teacher, would use about ‘Mr. Market’ and he would say he tended to be a manic depressive. I think that’s true.

If you back up a year ago, investors were in the doldrums, selling stocks in mass. Today, if you look at various sentiment indicators surveys that go out to investors, I think one of the best is Ned Davis’ research on the crowd sentiment poll, which is a series of polls a day amalgamated together, but it’s at a very high level. And they’ve done some great research on that. But once you get to that level, the future returns from that point in time tend to be low. And to me, Mr. Market seems, again, really excited about the state of things.

We’ve had this melt-up in stock prices, and looking broadly at the US, you’re trading 20 times earnings; that’s well above normal. You have the anointing of what else there are, you know, in this case, now seven sort of super stocks that are driving markets, disproportionately. So, and then again, the valuation of those super stocks already reflects that.

It was funny to me if you think about the last, gosh, 12 to 15 years, how I’ll say simple phrases seem to undergird the market and continue to drive it higher. One of them was ‘Don’t Fight the Fed’. And that was right. I mean, the Fed flooded the system with money, went to zero interest rate policy, did some things with quantitative easing that aren’t even in the textbooks, and markets reacted accordingly. So why isn’t the opposite true? They’re withdrawing money dramatically from the money supply, and they’ve ratcheted up rates dramatically.

Another one was ‘There is No Alternative,’ and that became the acronym for T.I.N.A. Well, today, you can earn about a 6% return very conservatively by owning investment-grade corporate bonds. So there is an alternative, and what concerns us is the mantra of ‘Buy the Dip” could become ‘Sell the Rip.”

And so again, be cautious and take advantage of where the market stands today. Sell some of that exposure into the strength and bolster your reserves to survive with ease an economic storm.

AGW Capital Advisors is a registered investment adviser. Information presented is for educational purposes only. It should not be considered specific investment advice, does not take into consideration your specific situation, and does not intend to make an offer or solicitation for the sale or purchase of any securities or investment strategies. Investments involve risk and are not guaranteed. Be sure to consult with a member of the AGW team, another qualified financial adviser, and/or tax professional before implementing any strategy discussed herein.