When the Stock Boom Turns to Bust - Andy Kessler, WSJ

[question everything]

Even after last week, it feels as if a lot of people think markets only go up. Buy the dip! Hold on for dear life! Feed the ducks when they’re quacking! Stocks. Bonds. SPACs. Real estate. Commodities. Crypto. $200,000 nonfungible tokens, known as NFTs, with clips of LeBron James. Even GameStop is flying again. The sentiment is: Assets go up; cash is for losers. That hasn’t been a bad bet. The March 2020 Covid insta-bear market quickly returned to an insta-bull market. So how do you know when to jump off the runaway train instead of being run over by one?

(snip)

Dot-com names peaked in early 2000, but selling picked up in October and never really stopped until 2003, with the market down a third. Remember that banker talking about losing 90%? He was talking about the late-’70s death march down, characterized by stocks going up in the morning and then down in the afternoon—optimists quickly stepped on by pessimists. Sure enough, after 2000, high-flying tech names were down 90%. Many went to zero.

How do these bull bashes end? When the last skeptical buyer finally sees the light and buys into the dream that every car will be electric, that crypto replaces gold and banks, that we overindulge on vertically farmed “plant-based steaks” while streaming “Bridgerton” Season 5 before we hop on an air taxi for our flight to Mars. Those last skeptics (maybe already) convince themselves there’s no longer any downside. And then boom, it’s over. Bull markets need fuel. When the marginal buyer is done, there are no more greater fools to buy in, no matter how well companies actually perform. The dream is priced in, and firms can only meet, not beat, expectations.

For those lulled by today’s bull market, remember that you own a piece of paper. Low-yielding U.S. Treasury bills and bonds are safe because they are backed by the U.S. government, by cash flow of tax dollars and by the country’s assets (think land, not Fort Knox). Stocks are backed by expectations of future earnings, but if you overpay during periods of high expectations (like today), then your downside is huge. Crypto is backed simply by the faith of those who proclaim it is a store of value. Even art and exotic cars and silly NFT tokens are backed only by faith the wealthy will overpay for uniqueness. Faith becomes scarce when the selling starts.

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https://www.wsj.com/articles/when-the-stock-boom-turns-to-bust-11615144869 (subscriber)

[Beakybird]

1. Eek!

[PoindexterOglethorpe]

2. It's also important to remember that over the long run stocks go up,

and in fact they go up two out of every three years. Trying to time the market, sell at the peak, buy at the bottom, isn't possible. Plus, there are stocks and then there are stocks. There are any number of good, solid companies, even those which pay dividends. Or you can buy a variety of different mutual funds.

Getting caught up in a speculative frenzy won't pay off. Being sensible about various things will.

I also have a financial advisor I trust. He's been managing my money for nearly 20 years now. Yes, there's a cost associated, but he's made me much more money than I could have done on my own. His full time job involves researching the investments, informing me about them, moving from one investment to another as he sees the need. And no, he's not churning. All of my money is in funds, rather than individual stocks. Because there's no speculative component, and he understands what he's doing, when the market goes down, my investments go down perhaps half of what the overall market does. They don't climb as dizzily on the up side, but that's more than fine with me.

[jimfields33]

3. I lived the 1987 crash. I lived the 2009???? Crash.

Just don’t sell and buy the bargains. Only ones who lose are those that sell. Don’t! I know some live on it. Just take out what you need. In a few years, it will be up again.

[Hoyt]

4. Historically, stocks have increased with relatively short downturns. However,

But the wrong circumstances could cause them to drop and stagnate for a decade or more.

At this point in my life, I don’t listen to anyone who says stocks will increase, because my long haul ain’t that long. Probably more worried about inflation, nowadays.

But who knows. Anyone that might know, is filthy rich.

[bucolic_frolic]

5. Crypto is money as art

I'm finding the stock rally unusually unwarranted these days. There is no gravity, no reliable volatility, no pullbacks, just grind higher. There is no place to hide, money market funds are closing, bond fund vulnerable to interest rates. They told you to buy gold but that's been down for 3 months, and there are currency issues with China's threatened devaluations. Oil really moved due to expectations of a growing economy, but gold is down due to expectations of deflation. Go figure.