rogernusbaum

Or at least, "irrational exuberance." The rally in the cryptocurrencies, the ascension of the meme stocks (GameStop is an example of a meme stock), the number of trillion dollar companies, Tesla and some of the other EV companies like Nio are all signs of a speculative mania that has the potential to end very badly. The following Tweets capture what is going on;

And;

The Tweet from Eric shows the greed playing out as market participants, not sure calling them investors is the most accurate, chase heat via options and penny stocks and appear to be losing interest funds that will help them get rich slowly. The Tweet from Charlie has a couple of the reasons that might be fueling the speculative mania.

I am in no way trying to predict when this will end or even if it will end badly, something beyond a "normal" bear market. It is clear that greed has been moving markets. One concept that is important to a successful, happy life is knowing where/when to be orthogonal to society. I started doing this long before I knew the word orthogonal and getting caught up in everyone else's greed is absolutely an area where orthogonality is a huge asset. What are your allocation and strategy beliefs? However you answer that question, changing your allocation and strategy beliefs because you know someone taking a huge risk with a large allocation to Tesla has made a lot of money is a terrible idea and the exact opposite of having investment discipline.

What was your mindset last March 23 when the S&P 500 closed down 33% from it's recent high? Would you have been grateful to have clawed back half of that by year end? How about being back to breakeven? If you didn't panic out then you are very likely up a little in the equity portion of your portfolio from where you were before Covid hit the markets. The story on the ground is still a mess in terms of jobs, the K-shaped recovery, the desperate need for stimulus (not my assessment, both the outgoing and incoming Presidents said we needed to go big with more stimulus) and the above points made in Charlie's Tweet yet stocks are higher.

The nature of bubbles and manias is there is no way to know when they end. Client portfolios (mine too) are slightly hedged. My strategy has been and will be to take further defensive action when the S&P 500 breaches it's 200 day moving average. That might happen soon or not for years. Guessing when it will end is the opposite of strategic discipline. We all know the stock market cycle will end but we don't know when. After it ends and the market goes down a lot, it will start to go up again. That's how it works and if you still believe in American capitalism (I certainly do) then you'd expect that is how it will play out in the future. All of this can remove emotion from the process if you let it. Greed is an emotion, just like fear, that when succumbed to, usually leads to bad decisions like seeing dollar signs at what might be a top and abandoning your discipline.