The ideal bagholder is one who includes more on every recession (purchase the dip) and who refuses to sell (diamond hands), holding on for the inescapable Fed-fueled rally to new highs.
Old-timers on Wall Street have watched out for being bearish for one factor, and no, it’s not the Federal Reserve: the old-timers have been waiting for retail– the private investor– to go all-in stocks. After 13 long years, this minute has finally gotten here: retail is all in.
If you question this, just take a look at record highs in financier belief, margin financial obligation and the Buffett Sign (see chart below). Existing valuations are so extreme that the previous extreme in the 2000 dot-com bubble now looks modest in contrast.
I have my own foolproof indicators for when retail is all-in. One is my Mom’s financial advisor advises moving 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 Mommy just notified me her consultant advised moving money from bonds into a FANG-dominated stock fund. Bingo, we have a winner.
2nd sign: average individuals who have actually never ever traded stocks are all-in and supremely confident they can’t lose. When 20-year university student are trading based on a “genius” 22-year old good friend’s recommendations, retail is all-in. When an employee cleaning a wood deck pauses to put $100,000 in a company he understands nothing about (yes, true story), retail is all-in.
Much is made from meme stocks, but the real motorist of retail going all-in is the total collapse of risk/ moral risk: the Fed will never ever let the market go down is not a meme, it is an article of nonreligious faith, supported by 13 long years of ceaseless Fed intervention/ stimulus, all in service of elevating the stock market.
Since all proof supports this secular religion– stocks never decrease since the Fed will never let them go down– the trick is to turn into the next blow-out winner or purchase the dip in Big Tech or a meme stock. And considering that something is always soaring like a rocket, the way to end up being a millionaire is to simply purchase what’s hot and purchase the dip.
In this nonreligious faith, nothing else matters, all the old things is just a diversion: price-earnings ratios, assessment, cash flow, future profits– none of that old things matters. Technical analysis is likewise a wild-goose chase: simply purchase the dip and rotate into what’s hot, and the millions just accumulate 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 unmatched heights is so undoubtedly special and uniquely powerful that it is literally crazy not to get a board and ride the wave to riches.
What the freshly minted millionaires do not comprehend is they’re the marks and bagholders. Wall Street has been patiently waiting on retail to go all-in so the pros can offer all the over-valued stocks to the blissful, trusting retail traders, who will continue to buy the dip and rotate into the next hot meme-stock up until their fortunes have dwindled to spare change.
The con requires euphoric self-confidence that stocks only increase permanently, and every retail trader is positive in their ability to ride the wave to riches. We’re lastly at that top of blissful confidence, where faith in the Federal Reserve is literally a spiritual 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 ever decrease is definitely real, take it to the bank, until they do. Every share of stock winds up in somebody’s account, and the perfect bagholder is one who adds more on every downturn (buy the dip) and who declines to sell (diamond hands), holding on for the unavoidable Fed-fueled rally to new highs.
That’s how accounts are ruined, and the wreckage isn’t simply monetary. The scars of being a bagholder can last a long period of time. But Wall Street is client, and a brand-new crop of bagholders ultimately captures Fed Fever, and the transfer of over-valued equities to a new generation of bagholders will play out according to the exact same script.
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