I would define a dumb investor as one who doesn’t think about risk in relation to reward, and therefore I fearlessly say: the majority of investors are behaving in a pretty dumb way.
S&P 500 is up three-fold since 2009 and earnings are at the same level they were before the financial crisis. Now if something doesn’t earn more money, it means it isn’t growing which means it should be valued at the same price through time. If the price of an asset just keeps increasing while earnings don’t grow at all, then the asset is riskier.
What to do is easy. Get out of the S&P 500 and similar investment vehicles that are completely detached from common sense because the risk is too high for the low expected return.
For me, a yearly return of 4% or 5% according to the current S&P 500 P/E ratio is a very small return when compared to the risk of a 40% decline if the economy does well, or a 60% decline if the economy enters a recession.
However, you don’t have to be totally out of the market. There are different asset classes like bonds, or stocks which are fundamentally cheap. Personally I'm looking into 50% LTB, 30- 40% stock, 5% Gold ( I hate gold but I follow successful people ) so I put a little in and remainder in cash. That's just for me ah.
I been reducing my stock positions that's why you don't see me post much on new entry into stock these days. I'm protecting the profits I took for the past few years.