Markets are at an all-time high. Everybody is making money and I just had my best month ever (see previous post). Now what?
A critic would say that this is not sustainable and the markets are in a bubble. They can’t possibly go any higher as the PE ratios are so high, earnings are too low, insane valuations, interest rates are about to increase, inflation is coming, governments will raise taxes to pay for their Covid-19 expenditure etc.
Yes, there’s lots to be concerned about.
The positive spin would be something like this: the world is re-opening, the pandemic will be over or we will all learn to live with Covid-19, mRNA and CRISPR will be used to treat countless other infections and diseases, a cancer cure will be found this decade, we will all transition to sustainable energy production and battery storage technology will make many breakthroughs, automation and AI will significantly improve our quality of life, the 4-day work week will be the norm, anybody anywhere on the planet will have access to 5G internet speeds (Starlink), the future will be spectacular and the stock market can only go up.
You are probably thinking that the bearish case sounds more reasonable than the bullish case. And that, my friend, is the curse of the bearish case – it always sounds smarter.
The bullish case sounds a bit like pie in the sky and is just too rosy. It doesn’t sound that smart and is harder to believe.
If you listened to the media and got out of the market whenever someone said a crash is coming, you’d most likely be broke. Or, at the very least, you’d be significantly worse off.
I remember reading an academic study into the profitability of the clients of a brokerage company. Collectively speaking the best performers were accounts of deceased people or people who forgot their logins and weren’t able to make any investment decisions. Most people don’t know what they’re doing and they are shooting themselves in the foot when they trade. Investing is like any other skill – you need somebody to teach you, otherwise you can make very expensive mistakes.
I’m a believer in passive investing (buying index-trackers) but know that there’s a place for active investing and hedge funds etc as well. You do you. There’s millions of ways to make a profit – find out what works for you and do that.