When the market bumps along at record levels, the best course of action is to remain cautious.
Many non-seasoned market participants perceive there to be low risk at the high end of the market and high risk at the low end of the market. This is exactly the behavioral bias that leads to significant losses.
When was the last time a crowd herded into the grocery store to buy goods because the grocer tripled the price of their goods? While it sounds crazy, that is exactly what happens in the equity markets.
Equity markets are the only market where participants want to purchase progressively more, the higher prices rise. Think about it…
Wall Street loves the frenzy of the “herd” losing their minds. That’s why IPO’s are also selling like hot cakes recently. It is the chance for the private owners and investment banks to reap in huge profits. They take THEIR money off the table by replacing it with market participants’ money. Thank you very much they say!
As the old retailer, Crazy Eddy, from Philadelphia used to pitch his potential customers – “Our prices are insane…!!!” But, his prices were rock bottom low - not like the stock market currently.
Be smart, be well-read, be aware and be successful.
