How to Invest When Everything Looks Expensive

Why does the market feeling expensive matter for my strategy?

When markets sit at all-time highs, most assets look expensive relative to historical norms — and that's exactly when retail investors make their worst mistakes. The instinct is to keep buying because prices keep rising, or to settle for a stock yielding 4% just because it beats the S&P 500's 1.3%. Sven Carlin's absolute value framework replaces that instinct with a hard rule: an investment only qualifies as a buy if it delivers a 6–10% owner earnings yield plus growth at its current price. Anything less is a relative play, not absolute value — and settling for relative attractiveness is how you overpay.

How do I calculate whether a stock actually clears the bar?

Start with the current dividend yield, earnings yield, or free cash flow yield — measured at today's price, not the price you wish you'd paid. Add a realistic growth estimate. If a stock yields 5% and grows earnings 4–5% a year, that's 9–10% total return, which clears the threshold. If it yields 4% but grows only 2%, that's roughly 6% — borderline, and probably not worth the risk near all-time highs. A common retail error is anchoring to a stock's old yield: a name that once yielded 5% may now yield 3% after a rally and no longer qualify. Recalculate every time.

Where should I actually be looking?

Not where everyone else is. Capital is crowding into AI, technology, and large financials, bidding those prices sky-high. Genuine value lives in the overlooked and discarded — European and UK small caps, cyclically depressed industrials, and select emerging markets that institutional investors ignore. Ask one question of every candidate: is anyone else looking here right now? If the crowd is already bidding, mispricing is unlikely. Don't dismiss non-US or small-cap names just because they feel unfamiliar — that unfamiliarity is precisely why they're cheap.

Is it really okay to hold cash?

Yes. This is the hardest lesson for most retail investors. When no candidate on your watchlist clears the absolute threshold, short-term cash is a legitimate position, not a failure. Holding cash while you wait for a cyclical decline is discipline. Buffett's best cash-holding periods preceded his best investments. If you find even one true punch card buy in a 12-month period, that's a success. The pressure you feel to 'do something' is the very signal that you're about to chase — and chasing means it isn't absolute value.

How do I stay ready without buying too early?

Build a '50 Value Opportunities' watchlist: up to 50 pre-researched candidates that already pass the structural tailwinds and business-quality tests. These are not buys — they're loaded positions waiting for the price to arrive. Confirm each business has durable competitive advantages, not just a temporary dip. Then monitor for the trigger: roughly a 50% decline from peak with yield expansion to your threshold. When it comes, your research is done and you strike like the value crocodile — decisively, after waiting patiently.

Always price your entry assuming the stock can fall another 30–50%. If you can't tolerate that, your position is too big or your price is too high. That margin of safety is what lets you sleep through volatility.

Next step: Start your watchlist today. Pick five overlooked small-cap or non-US candidates, calculate each one's current yield plus growth, and flag which are within striking distance of the 6–10% threshold. Then wait.