posted by mark
on Fri, 03/23/2018 - 16:04
At the end of each bull market, there are a number of telltale signs that consistently rear their ugly heads.
- The "dumb" money surges into the market at the top. There have been big flows into equities and equity funds since the beginning of the year. While there were some big flows out too, it shows the proclivity of speculators to "play the market". The dumb money is referred to those who do not normally delve into the market, but get excited at the top when everyone they know is talking about and putting money in the market. They need to get some too!
- IPO's are big. Drop box did their IPO(initial public offering ) today and it surged 29%! Investment bankers want to get it (their fees that is) when the getting is good. The IPO market is a loser’s game. Very few make money in the IPO market. Only the select buyers get an allocation. With that allocation, especially one that surges 29% on the first day, they sell. Generally, returns are based upon the time a security is held. One that is owned for a year that goes up 29% is a pretty good return. But one that goes up 29% in a day is unbelievable since the return is roughly .29 times 365 days. Why hold on to it any longer and risk a drop off in price? You have struck gold; sell it! And, that is what often happens. Some poor sucker buys it from them before it falls back down. It is called the "Greater fool theory".
- M&A (Mergers and acquisitions) are huge. Again, investment bankers want to make their fees. Target and Kroger may be merging. Good for the investment bankers, they are going to get a spectacular bonus! Remember the movie "The Wolf of Wall Street"? Dancing girls, parties, liquor and whatever.
- Everyone is talking about the market and the big money they are making. It reminds me of a friend who always went to the horse track. He told you about his grand winnings. But, nothing was said about the losses. What were his gains AND losses? Silience....
- The market takes on the look of a big casino. Fortunes are being made....and lost, too.
Be careful. Know the signs of excess.
