The Stock Market is Overvalued!

Bill Parrott |

In 1990 I joined the investment firm of Dean Witter Reynolds, Inc.  One of my first encounters was with a veteran broker who told me the market was overvalued and silver was about to take off.  His office was impressive with charts and graphs adorning his walls.   He referred to the charts on the walls and gave me an education on why silver was going to rise and stocks were going to fall.  He was a seller of stocks and a buyer of silver.  

How did his prediction turn out?

In the first quarter of 1990 silver was priced around $5.50 an ounce.   It’s currently trading at $17.52 an ounce.[1]    Had I taken his advice and bought silver I’d have averaged a 4.55% return.   A $10,000 investment in silver is now worth $31,854.

How about stocks?  The Dow Jones Industrial Average in January of 1990 was 2,590.  Today it’s 17,701.  A nice gain of 583% or 7.67% per year, without dividends.  

Let’s look at a few investment alternatives to the silver trade.

The Vanguard S&P 500 Index Fund during this stretch generated an annual return of 9.11%.  A $10,000 investment is now worth $99,556.[2]

A basket of Coke, Pepsi and McDonald’s returned 11.77% per year.  A $10,000 investment is now worth $187,506.[3] 

An investment in Apple, Microsoft and Intel turned $10,000 into $854,264 for an average annual return of 18.39%.[4]

The 30-Year U.S. Treasury Bond was paying 8.5% in 1990.[5]   Instead of buying silver he could’ve purchased a guaranteed investment paying 8.5%.  This bond matures in 2020.  Who wouldn’t want 8.5% guaranteed today?

This broker was persuasive and a good salesman.   His case for buying silver and selling stocks was convincing but I’m glad I didn’t take his advice.

For the past 25 years I’ve heard the stock market is overvalued and silver, gold, wheat, oil, etc. was going to outperform stocks.   In the short-term this may be true, but I’ll always place my bet on stocks for the long haul.

How much better to get wisdom than gold, to get insight rather than silver! Proverbs 16:16

Bill Parrott is the President and CEO of Parrott Wealth Management, LLC.




[2] Morningstar Office Hypothetical.

[3] Ibid.

[4] Ibid.