Going back to the description of a bubble that started this thread, doesn't the current situation look similar? Even this group has slowed on postings, with people accepting that the bull market has come back. To recap the original description and contextualize for today:
2. Bubbles always grow larger and last longer than anyone expects.
Didn't we all think the bubble was bursting just a few weeks ago?
3. The crash is a total surprise, coming just when it seems that everyone has accepted the idea that it will continue forever. In fact this acceptance is what causes the crash, no new fools left to bid up the price, everyone is already in.
And then the market came roaring back, making us all feel like fools. "Gee, I guess we over reacted... I guess we are still in a bull market, this bubble isn't bursting..."
4. Bubbles always go up hard at the end and crash hard. Any pause or small dip in the growth rate is unstable and will be followed promptly by an up spike (more likely) or the crash. Thus "buy the dip" is usually very profitable, dips are not the crash, the real crash will be painfully obvious.
So we had our dip that people thought was the crash - but now we are above the old highs. Internet stocks in particular are testing new high values. YHOO went up over 14 points today alone.
5. The base of the bubble narrows at the top. At first the best tulips go up, then all tulips go up, at then end a select few tulips go ballistic. Then all tulips crash together, usually there are one or two dead cat bounces.
Maybe we have another bounce coming before everything crashes together, but just looking at the Internet stocks, there is definitely a situation where quality stocks are going up faster and higher than others, though even second tier (NSCP, SEEK, LCOS) are all seeing higher levels than in months.
6. Most fortunes made during the bubble are lost. A very few fortunes are made shorting the crash. The enduring fortunes are made by those able to void the crash and buy up cheap assets after the crash (not the tulips, but real assets).
So what are you doing? I am 75% in cash, 25% in short positions. |
