Market thermometer
Measures how hot or cold the market is — to manage your emotions, not as a buy or sell signal.
In One Sentence
The thermometer measures how cold or hot the market is, helping you see the mood clearly; it doesn't predict rises or falls, and it doesn't tell you to buy or sell.
Why It Matters
I used to treat it as a sell signal, but my call turned out to be wrong; after running backtests, I changed that. Now it only serves as a reminder: when it's hot, don't borrow and don't raise your bets; when it's cold, don't flee in a panic. What grows your wealth isn't the thermometer, but investing as usual year after year without interrupting compounding.
One Number
When I wrote the book (October 2026), US stock prices were about 1.85 times their average over the past 10 years, in the top 6% of readings since 1881. I myself was still investing a fixed amount every month as usual — not selling, not borrowing and not adding extra (Shiller data · Chapter V).
In the Book
Section 2 of Chapter V explains where the temperature readings come from. Chapter VI turns it into a checklist covering six areas — price, valuation, sentiment, leverage, panic and money flows — with monthly data refreshed automatically every week.
Go Further
- Fear and greed What it measures is whether the crowd is swinging toward greed or fear.
- "Sell when pricey" backtest Backtests in the US, Japan and Taiwan all show that "sell when pricey" costs you, so it doesn't give sell signals.
- The timing trap It's for keeping yourself in check, not for guessing highs and lows.
- Buying in crashes When it's cold, it only reminds you not to run; adding more from new income in a crash is part of the method itself and doesn't rely on it to guess the bottom.
- Borrowing and leverage Margin debt is one of its readings; the hotter the market, the more you should steer clear of borrowing.