For the last year and a half, the market averages have been unexciting. The most recent activity shows most stocks are staying flat or slightly sinking while primarily seven stocks carry the averages up. The excitement for technology, especially around AI, is running at a high pitch. Here are just a few indicators with trailing P/E’s: NVDA is 196; AMD is 658 (really?! LOL); TSLA 69; UPST has NO earnings, still; PLTR also has no earnings.
As those older folks on the East Coast remember, Crazy Eddie out of Philly always said that his “prices are insane”! We need to bring Eddie back, but on Wall Street.
Isaac Newton was known as a brilliant physicist, but he is also known for losing three million dollars in the South Sea Bubble of the early 1700’s. Ben Graham wrote the following in his 1949 classic, “The Intelligent Investor”.
“Back in the spring of 1720, Sir Isaac Newton owned shares in the South Sea Company, the hottest stock in England. Sensing that the market was getting out of hand, the great physicist muttered that he ‘could calculate the motions of the heavenly bodies, but not the madness of the people.’ Newton dumped his South Sea shares, pocketing a 100% profit totaling £7,000. But just months later, swept up in the wild enthusiasm of the market, Newton jumped back in at a much higher price — and lost £20,000 (or more than $3 million in [2002-2003’s] money. For the rest of his life, he forbade anyone to speak the words ‘South Sea’ in his presence.”
The markets have a history of sucking people in for the last surge before a collapse. Now, I’m not saying I see a collapse, but I see a lot of unfavorable characteristics that could very well bring havoc to the markets. Some are following the herd of Wall Street where some firms are turning bullish. Remember that they don’t possess a crystal ball. They’ll get their wrap fee (annuity payment) no matter if the market goes up or down. After all, the money they are playing with is OPM.
Some say that we have exceeded the average time for a bear market, but they fail to mention that we have essentially had a bull market since 2008. How many 15 year bull markets have we had!?
At this point, I am cautious. If I am wrong, I lose some from the upside. If I am right, I get to play another day while others may be financially crushed. So, do I want to let my emotions get ahold of me and embrace FOMO? Oh hell no! I’ll just sit this one out.
Be smart, be well-read, be aware and be successful.
“The line separating investment and speculation, which is never bright and clear, becomes blurred still further when most market participants have recently enjoyed triumphs. Nothing sedates rationality like large doses of effortless money. After a heady experience of that kind, normally sensible people drift into behavior akin to that of Cinderella at the ball. They know that overstaying the festivities– that is, continuing to speculate in companies that have gigantic valuations relative to the cash they are likely to generate in the future – will eventually bring on pumpkins and mice. But they nevertheless hate to miss a single minute of what is one helluva party. Therefore, the giddy participants all plan to leave just seconds before midnight. There’s a problem, though: They are dancing in a room in which the clocks have no hands.”
Warren Buffett
