Newbie Investors Face Sudden Stock Shock

Newbie Investors Face Sudden Stock Shock

Monday the DOW Industrials fell 700 points… with the latest Covid warnings and “market sell-off” headlines. Tuesday the selloff reverse and the decline was erased as stocks had again touched all-time highs by Friday.


Does this chart make any sense at all? It does when we consider the warning Bloomberg posted this week:

“There’s a lot of very young people in the accumulation phase,” said Dan Egan, managing director of behavioral finance and investing for robo-adviser Betterment, who added that younger investors in particular have used selloffs as buying opportunities. “If they have any excess cash sitting around, they’re going to use it to buy in.”   7-19-21 Bloomberg.Com

I highly recommend a subscription to Bloomberg as they often have great sights into understanding these confusing times.

Irrational Exuberance in Stock Prices, Yet Again

As the reality of the very overpriced U.S. markets finally sinks in to experienced investors, we will continue to see these sudden downward swings— which need to start a much needed correction.

Without some air coming out of this massive Stock Bubble, we fear the correction that’s been avoided, so far, will end up in a massive crash. The most speculative investments can easily see a 40% to 50% correction.

Many corporations that have never made a dime of profit are highly overpriced, in our opinion, and are susceptible to losing 70% to 90% of their value in a severe crash.

While it’s hard to believe, but the NASDAQ composite index lost over 70% of its value peak-to-trough. Many high flying Dot Com and technology companies simply disappeared and investors lost everything. (Read more at Wikipedia.)

 

We’ve seen this exact scenario that occurred in the Dot Com run up and crash of  and again with the near financial meltdown of 2008.

From the perspective of writing about the markets since 1985, it’s obvious to me that each generation learns about the “booms and busts” on their own.

We Despise All the Get-Rich-Quick Hype

Each generation discovers the hard way not to believe 3verything 5hey read. All the get-rich-quick schemes and all the guys who promise 1,000% returns buying Stock Futures come out of the closet and suck in the unsuspecting “newbie investors.”

Undeniably, a few great corporations are born and go on to highly reward speculative investors. But worry when we read the daily internet hype about electric cars, the 5G Internet-of-things, green energy startups, marijuana, and the mother of all hype— cryptocurrency.

Most of them will fail miserably and investors will be the big losers. Meanwhile, Wall Street and kids starting these companies will walk away with hundreds if millions of dollars. Please invest carefully and prudently.

While the U.S. Stock Markets appear ? be prepared for a surprise crash suddenly coming out of nowhere. And this one may have a domino effect that even the Federal Reserve will be helpless to save us from experiencing.

Invest carefully. Diversify outside the Stock Market. Protect your life savings.

Bulls Make Money, Bears Make Money, Pigs Get Slaughtered

To quote Bloomberg again—

Someday, the post-pandemic equities rally is going to end. When it does it will take a lot of newly christened stock bulls with it.