This article was originally published by Charles Hugh Smith at Of Two Minds Blog.
The ideal bagholder is one who adds more on every downturn (buy the dip) and who refuses to sell (diamond hands), holding on for the inevitable Fed-fueled rally to new highs.
Old hands on Wall Street have been wary of being bearish for one reason, and no, it’s not the Federal Reserve: the old hands have been waiting for retail–the individual investor– to go all-in stocks. After 13 long years, this moment has finally arrived: retail is all in.
If you doubt this, just look at record highs in investor sentiment, margin debt and the Buffett Indicator (see chart below). Current valuations are so extreme that the previous extreme in the 2000 dot-com bubble now looks modest in comparison.
I have my own sure-fire indicators for when retail is all-in. One is my Mom’s financial advisor recommends shifting her modest nest-egg out of safe bonds into the go-go stocks that are topping out. Back in late 1999, it was Cisco Systems and the other dot-com leaders, today it’s the FANGMAN stocks. Sure enough, my Mom just informed me her advisor recommended moving money from bonds into a FANG-dominated stock fund. Bingo, we have a winner.
Second indicator: average people who have never traded stocks are all-in and supremely confident they can’t lose. When 20-year college students are trading based on a “genius” 22-year old friend’s advice, retail is all-in. When a worker cleaning a wooden deck pauses to put $100,000 in a company he knows nothing about (yes, true story), retail is all-in.
Much is made of meme stocks, but the real driver of retail going all-in is the complete collapse of risk / moral hazard: the Fed will never let the market go down is not a meme, it is an article of secular faith, supported by 13 long years of ceaseless Fed intervention / stimulus, all in service of elevating the stock market.
Since all evidence supports this secular religion–stocks never go down because the Fed will never let them go down–the trick is to rotate into the next blow-out winner or buy the dip in Big Tech or a meme stock. And since something is always shooting up like a rocket, the way to become a millionaire is to simply buy what’s hot and buy the dip.
In this secular religion, nothing else matters, all the old stuff is just a distraction: price-earnings ratios, valuation, cash flow, future earnings–none of that old stuff matters. Technical analysis is also a waste of time: just buy the dip and rotate into what’s hot, and the millions just pile up on their own.
Every generation that experiences a speculative mania feels it’s unique. This is the pattern that repeats. The confluence of forces driving the mania to unprecedented heights is so obviously unique and uniquely powerful that it is literally crazy not to grab a board and ride the wave to riches.
What the newly minted millionaires don’t understand is they’re the marks and bagholders. Wall Street has been patiently waiting for retail to go all-in so the pros can sell all the over-valued stocks to the euphoric, trusting retail traders, who will continue to buy the dip and rotate into the next hot meme-stock until their fortunes have dwindled to spare change.
The con requires euphoric confidence that stocks only go up forever, and every retail trader is confident in their ability to ride the wave to riches. We’re finally at that summit of euphoric confidence, where faith in the Federal Reserve is literally a religious experience.
Robbing Hoods going public is a scriptwriter’s touch. (Forgive me if I got the name wrong, I’m working from memory.) Stocks never go down is absolutely true, take it to the bank, until they do. Every share of stock ends up in somebody’s account, and the ideal bagholder is one who adds more on every downturn (buy the dip) and who refuses to sell (diamond hands), holding on for the inevitable Fed-fueled rally to new highs.
That’s how accounts are destroyed, and the wreckage isn’t just financial. The scars of being a bagholder can last a long time. But Wall Street is patient, and a new crop of bagholders eventually catches Fed Fever, and the transfer of over-valued equities to a new generation of bagholders will play out according to the same script.
My wife was the stock market person, investing stocks and related stuff. Me, I heard so many horror stories from my Dad and others who lived though the crash of 29, on bad things were and what the value of things were. My Dad told the story of is father owning almost 3 to 4 thousand acres of grazing ground and farm land before the crash of 29. After Nov of 1929, my Dad said that His father went like crazy to save the home 500 acres of river bottom ground and other tillable farm ground and of course the home farm place. they lost almost 3 thousand acres of farm and pasture land for taxes. And now that farm is gone except for a few acres where the old house is still standing.
Then your father didn’t really own it. Nobody that pays govt. rent (taxes) own anything. Welcome to the grand illusion…
I don’t have any stock only REAL assets. My pension has exposure to stocks but I could live without it. Lot’s of ways to make $$. Solar equipment has been very good to me. People are amazed at how I get such awesome deals on stuff. Buy super cheap… sell cheap. I charge 40 per hour for installs too plus the markup for materials. A lot of biz this year, people are going off grid asap.
I’m doing the same thing up here in Ontario, Canada. People are crazy for 3kW and 5kW systems for their cottage and vacant land purchases, off-grid independence is the money-maker currently.
“Second indicator: average people who have never traded stocks are all-in and supremely confident they can’t lose.”
That’s what usually happens just before a bust.
But maybe this time will be different, we’ve never had the government pumping so much money into the economy as it is now before either.
After all, the average PE of the market is only 32.5 as I post this. An obvious bargain.
what goes up (without a parachute) will come down hard
A investor once told me, the stock market is just a form of legalized gambling…and we all know in gambling the house always wins…
This is why I place my treasure in heaven for the words of Christ says where your heart is, that is where your treasure is.
If you are a true Christian, born from above by the Spirit of God, a slave of Christ, redeemed by His blood…read the words below, for they surely are not to the children of the devil, for their home is in the depths of the lake of fire.
Matthew 6:19-21
19 “Do not store up for yourselves treasures on earth, where moth and rust destroy, and where thieves break in and steal. 20 But store up for yourselves treasures in heaven, where neither moth nor rust destroys, and where thieves do not break in or steal; 21 for where your treasure is, there your heart will be also.
The “normalcy bias” just doesn’t allow people to see the evidence. Congress-critters (not all) & other morons canNOT reconcile a check book. Many of these same idiots embrace MODERN MONETERY THEORY that suggests we can print monopoly-money forever. Americans allowed stupid governance for too many decades.
When the crowd and experts go in one direction – I would go in the other direction.
When the experts tell me to take these blood clotting ” vaccines ” I refuse.
Its really very simple
Sheeple VS Lions
J-man, that strategy will never fail you. There is an old saying “most of the time the majority is wrong”. Society has been inculcated to be controlled by a herd instinct, to take orders, and submit to peer pressure. Almost everyone’s thinking, beliefs, attitudes, and behavior are dependent on what
everyone else does. I believe it probably wouldn’t benefit the nation as a whole even if everyone was well educated because all that effort would not be used in a concerted way to improve things, only to fit in and follow the herd, take orders, and submit to peer pressure. Else why would the majority not oppose those entities working against common interests, or continue to vote for those corrupt officials who undermine them and lie to them continuously, and a million more obvious examples. I hate to say this, but half of Americans are really stupid and unthinking, and barely live above the animal level in terms of consciousness, this is easily observable. Therefore as you say, when the “experts” and crowd go one way, one should go the opposite way. This applies to vaccines and to almost every other conceivable scenario. This mentality has never failed me.
I’m doing the same thing up here in Ontario, Canada. People are crazy for 3kW and 5kW systems for their cottage and vacant land purchases, off-grid independence is the money-maker currently.