 Good day fellow investors. Now exactly a month ago I made a video about how the stock market is going to continue to go up because Bank of Japan, European Bank are still putting a lot of cash into the system. If we look at the chart my forecasting was excellent. The stock market is even down in the last 40 days. Nevertheless in the last five years the stock market is really extremely positive. So what to look now from a business perspective the best thing to look at are valuations and then we'll discuss also something else that's very important. If you look at the price earnings ratio the price earnings ratio is around 24. something. Since 1881 the average price earnings ratio has been 15.66 so now we are 55% of the average. The lowest point was in 1920 when the price earnings ratio was about five. So just before stocks exploded in the 1920s people were pessimistic about stocks. This means that if you buy in optimism usually your returns will be lower than if you buy in pessimism. Those who buy now can expect lower returns than those who bought in 2009. Of course and unfortunately that few people understand that and I will repeat that sentence a thousand times. Be greedy when others are fearful and be fearful where when others are greedy. That's counterintuitive. That's counter what 99% of the population does but leads to higher returns and when an investor understands that then really it is painful in the short term. We have seen some stocks that we covered here that went down 20-30% or they went up and then again down but in the long term if you look at five-year trends and that's what I prefer to invest with the five-year horizon really multi-baggers can come out of that. If you look at the cyclically adjusted price earnings ratio that uses 10 years of earnings so the average 10-year earnings we are now at close to 30. However the average is 16.77. With the lowest points in 1930 again pessimism, 90-43 pessimism and 1982 when everybody was expecting high inflation and nobody wanted to invest in stocks especially since stocks went nowhere from 1976 to 1982 and again if you invested then your returns would have been amazing. If we take a look at global price earnings ratio China 7.4 everybody expects the crisis there so banks are very cheap and those have big weights in the index. Russia also very low so Germany 20.5, France 19.5 so in developed markets you can expect returns of about 5%. If you look at China and then find good companies you can go to 10-20% easily. Follow this channel we discuss those kinds of investments and perhaps you find something interesting for you. Now I want to conclude with something that's really disregarded now nobody looks at that and that's price to book value. Book value is what you get price is what you pay and nobody looks at that. If you take a look at the price to book value chart in the 2000s it was very high everybody expected an explosion in internet stocks then it went down in 2009 especially below price to book value ratio of 2 it means that the equity is half the stock price and now we are at 3.18 which means that the equity you buy is three times smaller than the stock price. This means that if there is a house of a million on the stock market you pay 3 million for it so no margin of safety in investing in stocks now and we are eight years in an economic upturn so when that shifts and we have seen with Footlocker when the trend shifts earnings go down and the margin of safety really splashes. Footlocker's book value was 20 the stock price was 70 so there is no margin of safety there. Now further management is doing a lot of buybacks but let me explain the illogical thing with buybacks they are buying their own stocks at three times or six times book value like apple. If you look at the SAP 500 earnings that are now at 100 points the SAP 500 at 2400 points the book value of the SAP 500 is 768 points which means that to return on equity equity being 768 points the book value is 13 percent for the businesses 13 percent so if they invest they do the same replicate the businesses their returns are around 13 percent at the moment however they are mostly buying back their stocks where the return price earnings ratio is around four five percent which is a crazy thing to do why are they not investing in their businesses growing their businesses that's a very important question it leads to productivity it leads to this being a credit bubble another credit bubble and makes me just warning to be very careful where you invest or to invest like a swing trader really taking advantage of the short-term positive trend so be careful out there. So again some food forethought book value return on equity of the companies where are they investing Buffett doesn't do buyback so he invests with the 10 15 percent return he gets from the businesses he doesn't care about potentially investing on the six seven percent by buying back stocks and pushing stock prices up very interesting to dwell about look what are your companies what are your management doing because they are your employees you're the owner of the company from a business perspective and the management the CEO is your employee you're his boss so really look at what's going on there thank you for watching i'll see you in the next video leave your comments below any ideas any discussions about stocks that do it right do it wrong share it with us as we are here here to learn together see you in the next video