As stock market euphoria continues unabated, I found a fabulous article that describes bull and bear markets that I thought could be highly relevant at this juncture in time. I’m going to keep my comments relatively short and let the article do the talking. As an analyst looking at valuations of most Dow and S&P stocks, I see very few compelling opportunities. I see a massive influx of capital going into passive investment strategies that pay absolutely zero mind to valuations. People doing this think they are being “safe” as it is what everybody is doing. In investing, there is no safety in crowds, unfortunately. At the same time, predicting the timing of market or stock moves is truly a fool’s errand. Bubbles can last for years at times but they all do burst.
“In investing, there is no safety in crowds.”
We have our handful of investment opportunities where I struggle to see how we could possibly lose money over the long-term, and where I think the odds highly favor us making 50-75% over the next few years. I’m glad we have them as it creates a clear path for profitable investment. Even better, these special situations should not be that highly correlated with the overall market. That might seem like a disadvantage when markets are euphoric, but will prove to be a major blessing when prices once again converge towards value.
“Bubbles can last for years at times but they all do burst.”
Above is a great graph that outlines just how much of S&P 500 bull market profits have been eaten up when bear markets have come around. Imagine that type of hit to all these people that got into index funds after most of the bull market had already occurred. It will be a stampede and there will be an abundance of casualties. In my opinion, this will be another sterling example of a good idea (index funds), getting overly-utilized at the worst possible times.
Below is a link to the article, which I’d strongly encourage you to take a look at! Thank you very much!