it's almost impossible to know ahead of time if it really is a bubble
LOL!!! No. That's wrong. Bubbles are not at all hard to identify. They have distinct identifying characteristics, in the performance elements, in the behavioral aspects, and in the "relative" conditional elements creating them. Easy to spot. The difficulty is not in identifying a bubble that exists, by one or many of its identifying characteristics... and it is not in defining trading strategies that work in the context of knowing it is a bubble that you are trading. It's not really anything different than anything else in the nature of the challenges routinely presented to traders and investors ?
"Win your trades"... ? Know what you're doing ? Be aware of the environment ? Notice what it is that drives others choices... and what they lie about ?
And, if you have that basic situational awareness, the rest is about timing... and almost only that... other than picking the right ride at the right time... and riding it well. The requisite skills, once fear of loss is conquered, the same as all trading, is not much different than learning to over-come ones youthful embarrassment sufficiently to learn to dance without stepping on others toes or tripping over your own feet... while, then, noticing and adapting to changes in the music... without losing the rhythm in the beat as the music changes.
There's no difference between a bubble and "a bull market" on the way up... and none between a bubble and "a bear market" on the way down... other than in the matter of degree in excursion relative to norms... which is all easily measured.
Timing tops and bottoms... also not different in bubbles than bulls and bears... and the same and similar errors entrained in those, by those who benefit from the claim made re market timing, saying "it can't be done"... ...nearly impossible to time it accurately and the volatility can kill you
Not "nearly impossible" to time it accurately... but the assumption made misses the point... that you don't have to be perfect.... to generate advantages relative to proceeding based on deliberately adopted ignorance. And, otherwise, the claim becomes an assertion that "buy low" is not possible, because, for some unidentifiable reason, it is not possible to determine, using historical data and current market information, when the price is low ? Most of the rest is only an issue in the selection of a time period to consider in making the evaluation.
The final bit... is only in determining how and why this time is different... relative to prior instances... as each situation will be different from historical predecessors ?
Volatility... like any other bet... a bet, more or less well calculated, and not an investment. The outcome of a bet made depends on being on the right side of the trade, at the right time... the elements of timing and being right... about managing risks well... given proper attention paid to the dynamic governing the market... The largest element in managing for volatility... should be in avoiding risks that are avoidable, while profiting from others errors in calculation without taking overly large risks yourself. Then, its a risk to manage as just another options trade. The time element in avoidance by "averaging' risk over time... works for shareholders in rising markets... does NOT work in declining markets.
The current bubble... inherits much from unresolved legacies dating from 2001, 2008, and 2020... and the changes made on a sustained trend in the same drivers those had... while also having unique features in the current context, that have now deliberately divorced market functions from underlying economic realities, which is more true now than has been true in any prior instance in recent history.
As Covid ravaged the global economy... stock markets were deliberately kept afloat, quite artificially... using "the same" monetary policy innovations as drove prior market cycles, and cushioned their failure... But for which "innovation" there is no acknowledged exit strategy, with increasing awareness of that fact now... in a cycle that address the problems as before, only with "more"... this time with no capacity for any cushion.
Having failed ingloriously in "fixing it" through two prior cycles... this time, still the same basic stunt as before, only both massively amplified in scale from those prior performances... and unchanged... as it differs not at all in expected outcomes... but this time the act is being performed without a net....
Money, currencies, and bonds... always relevant in considering stocks. But, never before in my life time, or in recent history, have all three, along with stocks tied to them, balanced on the end of a monetary policy pole holding them up, been caught in that cul de sac they are now... at the end of a debt cycle, with near zero monetary authority, interest rates unable to go any lower... which means they must go higher at some point, or experience meaningful structural change... no "real" ability to borrow more... no practical ability to borrow less without inducing... WHAT? Currencies, all and only fiat, now... deservedly under attack, given the obvious in circumstances... together conspire to suppress gold and silver as alternative money less likely to be savaged by inflation... when printing money to eliminate debt with inflation is the only obvious escape left from current circumstance... But, also, uniquely now, in history, currencies are under attack for their basic design flaws, as well as for the obvious failures in management and performance over time...
So, yeah... this market is a bubble, a new instance in an ongoing series, having been inflated more than its predecessors, on purpose, by a profligate monetary policy... from which there is no viable exit strategy... But, that makes it not "just" a bubble, but a bubble being balanced on the end of a long monetary pole...the balance being held by circus performers preparing to mount the trapeze... to perform a stunt that has been tried only twice before, never been tried successfully, but this time, will perform it without a net...
What could go wrong ? That's the wrong question, of course, since all of it could go wrong... The better question is... what's most likely to go wrong first... and when is that likely to occur...
The difficulty there, you allude to as..
..nearly impossible to time it accurately and the volatility can kill you...
But, the difficulty there is still only one, first, of being on the right of the trade at the right time... picking the right instrument to optimize reward and minimize risks... and, then, the rest is about timing participation to minimize the risk of being wrong... either in the timing or the choice of vehicle ?
I do not take it as a given... that one should chose, first, to be held at risk in the market... only because the planned family outing at the beach happens to occur during the likely landfall of a Cat 5 typhoon ? You don't have to be perfect in predicting the landfall of a typhoon... to not be caught lounging on the beach when it arrives ?
Better to be careful in picking the right days... with one eye on the weather... and only going to the beach on those few days with better potential... while otherwise avoiding the attendant risks in typhoons and snowstorms... entirely.
It's just common sense... minus the element of the news helpfully warning you away from the typhoon or blizzard, but encouraging you to ignore the dire forecasts everyone accepts as true in the markets... as otherwise the all important sales of cotton candy and rentals of lounge chairs and scooters by concessionaires could be effected...
There is not LESS risk in holding popular stocks while assuming upward momentum must continue... because it has recently... while choosing to be blind to fact of a storm approaching ? |
