Have we reached the silly season?
The news is filled with movie starlets discovering the stock market and 16 year-old actresses day-trading from their iPhones. Are these signs of a bubble?
An old market saying goes, “When even shoeshine boys are giving stock tips, it’s time to sell.” The market is a discounting mechanism that incorporates not only the latest news, but our sentiments about the news. So big, emotional events like Pearl Harbor, 9/11, Neil Armstrong’s walk on the moon, or the Lehman Bankruptcy tend to magnify what we’re already feeling.
But market buzz can permeate the culture, and encourage otherwise sensible people to buy and sell on a whim. Until Friday the market had risen for 11 straight days, something that hadn’t happened since 1996. And market volatility has fallen to the lowest level in six years. Complacency and momentum are a powerful cocktail.
I have nothing against bubbles. They can be profitable if you have the good sense to leave the party before authorities show up. But what the wise do at the beginning, fools do in the end. When the music stops, be sure there’s a chair nearby.
Douglas R. Tengdin, CFA
Chief Investment Officer