That's dicey territory, Don.....I'd be very very careful there.
There is one idea that is ALWAYS proliferated and widely believed during the late stages of every bubble: "This time, it's different."
That phrase, and its various permutations, is the sine qua non. Once distributed and widely believed, it constitutes compelling evidence (if not proof) that, no, this time it will in fact not be different. Once again. Just like the last 800 times people coulda swore this time would be different. And, it is a sure-fire short signal if ever there was one.
Remember the rationalizations for the steadily advancing valuations during the late 90s? "This is a different economy....this is the internet age. We have never known an economy like this, so we are charting new ground here. This is not like your father's stocks....those stodgy old IBMs and Coca Colas and General Motors and boring old utility companies.....now we have explosively growing companies spawning new sectors all the time from exciting new technologies, and the sky's the limit. The markets have to re-adjust their definitions of valuations in order to take these things into account. And that's why this time it is different."
And that was very widely believed, as I am sure you recall. When Greenspan gave his famous "irrational exuberance" speech 18 months before the crash, he was shouted down as an old-fashioned, out of touch, dinosaur whose economic "theories" were no longer relevant. And the same judgements were made about practically anybody else that objected to how far out of whack things had become. I remember shorting RIMM because it had achieved a P/E that was over 1000, and people told me I was stupid and didn't understand the "new market-b2b dot com economy" and that the shorts were gonna get squeezed to death.
This is not only applicable to bubbles and their inevitable implosion. How many times have you seen a stock, index, or market do something very unusual, then hear some version of "this time, it's different" as an explanation for why that's perfectly okay and won't revert back to "normalcy," only to discover later that no, this time it wasn't any different after all? I'll give you a recent example: QQQQ rises 38% in less than 2 months, and people (some on this thread here) are going through all kinds of mental gymnastics trying to explain how this is sustainable, and how this is reasonable, how this market is just going to keep rallying....despite the fact that this is an annualized return of over 225%? C'mon.....I was born at night, but it wasn't last night. That just can't last.
So, anytime you catch yourself beginning to think or say, "I think this time it might be different.....in that other market, in that other era, things were not the same, so maybe it is not relevant anymore"......well, just remember that many a lost fortune was preceded by that thought.
With only rare exceptions that are always temporary, all markets everywhere, during every era, in every kind of economy, in every country, adhere to established, time-tested, market-tested norms. They never, to the very best of my knowledge, fundamentally redefine a norm that had been previously established over a period of many years and many different market cycles. It just doesn't happen, and never will, IMHO. The greater those norms are stretched, the more strongly they snap back. If those norms are stretched for too long, too far, and too many people come to believe the abnormal to now be normal, well that is the definition of a bubble, my friend. All you need is the chart to prove it.
I don't really know why that is, but I strongly suspect it has everything to do with how humans participate in markets. There are common features of unwritten strategies there that I think are at play, and are just fundamental to our approach to life in general, in terms of "strategies." But mostly, I think it happens because most participants are not making their own decisions privately, independently, like you might see in a secret ballot. Instead, people are watching one another for their cues. I think it is a little like driving on the freeway.....mostly, you just watch people around you, and react when you see them do something. If they move into your lane, you move or slow down or speed up or something. Nobody is "smarter" than anybody else, we are just droning along. You don't know where people are going or why, and it wouldn't help you if you did. You don't really know what their "strategy" is, nor do you care particularly. You just adjust and go with the flow.
Similarly, I think if market participants sense everybody is buying like crazy, then they will also, regardless of whether it makes any sense or not. And if they sense everybody is selling like crazy, then they will sell. And their actions have a momentum that builds and builds. As long as the inflections do not deviate too far from "normal" or "mean" or "median" values, then this is no problem at all, and you have orderly markets. But, if it proceeds beyond some poorly-defined line of no return, then there is no stopping it, and things must just run their disastrous course.
That's why I think the vast majority of information out there is not really helpful, or downright counterproductive. Because it does not directly influence market participants, who are largely unaware anyway. Most market participants are not basing their decisions on very much information at all. How much time did you spend gathering and analyzing information before your last trade? Five minutes? One hour? Can you point to any trade you have ever made and honestly say to yourself, "That trade was profitable because I processed a whole lot of data carefully and analyzed it meticulously before I made that trade." I suspect trades you made shooting from the hip with a split-second decision were as successful if not more so than those that you thought and thought and thought about.
The presumption that the "smart" market participants are those that have the greatest quantity of information and/or can process information faster or better is absurd, IMHO. Just look at these two clips and tell me if these people are aware of much of ANYTHING (except the trading going on):
youtube.com
youtube.com
pbs.org
My point is that all the information you need to know about the market is in the market itself.
Terry |
