Investor Behavior Is 'Crazy'... And There's Almost Nobody Left to Buy
Editor's note: Amateur investors are pushing the market toward its peak...
These newcomers are piling in, hoping that stocks keep hitting new highs. They're not studying business fundamentals or looking for solid long-term bets. Instead, they're wildly speculating... believing somebody will always pay more tomorrow than they did today.
According to True Wealth editor Steve Sjuggerud, this euphoric sentiment has fueled the "Melt Up" for months. But the good times can't last forever. And soon, there will be nobody left to buy...
That's when the "Melt Down" will begin.
In today's Masters Series – originally from the March 11 and March 15 issues of Steve's free DailyWealth e-letter – he explains how 2021 is different from previous years... why investor behavior points to a bubble... and what a recent record in one major index can tell us about today's market...
Investor Behavior Is 'Crazy'... And There's Almost Nobody Left to Buy
The Melt Down is coming, my friend... And unfortunately, it will arrive this year.
But before you get bent out of shape with me for urging caution at the precise moment when things seem like they're getting really good, please keep this in mind...
I have been bullish – and right – on the stock market for nearly all of the last 12 years.
I am proud of that. But it's also why it pains me to tell you that the last 12 years of (mostly) good times for investors will likely end this year. (Nobody can know the future of course, but that is my prediction.)
I don't want to see that happen. But my years of experience tell me it's coming – and I want you to be ready.
Let me explain...
"Steve, why are you so sure the Melt Up will end in 2021?"
It's a fair question. The markets have been going up for years (with the exception of the COVID-19 crash a little more than a year ago). So why now? What makes this year different?
Your arguments are good ones...
- Stocks have been expensive for years, and it hasn't mattered.
- The Federal Reserve has promised low interest rates for a while.
- The economy is recovering from COVID-19.
- The new Biden administration is already spending a lot of money creating jobs and sending out stimulus checks.
You are right on those points, and more. Heck, they're some of the reasons I've said the good times would continue – and for longer than almost anyone imagined.
My basic premise all along has been this...
The Fed will keep interest rates lower than people can imagine, for longer than people can imagine. And that will cause asset prices like stocks and real estate to soar higher than people can imagine.
Times are good right now, based on those points. But this is also the exact situation you tend to encounter before markets peak. As I explained in the March 17 Digest...
Markets peak when there is nobody left to buy. That is all you need to know.
Unfortunately, we are getting close to that point right now... And that is exactly what makes this year different than previous years.
When music stars like Snoop Dogg and Gene Simmons (of the band KISS) are talking up cryptocurrency Dogecoin on their Twitter accounts, you know speculating is starting to get out of control. Heck, that crypto – which was created as a joke – has a larger market cap than Ford Motor (F). It's crazy. More from that Digest...
I have personally gotten texts from rock stars... pro surfers... and my kids' friends. They all want to get in on the game.
Yet none of them were interested in the markets a year ago. Heck, none of them were even interested in stocks or investing just two months ago, at the start of this year.
The reality is, most of these folks are not looking to become students of the markets. Most aren't looking to study the competitive position and profit margins of Target (TGT) versus Walmart (WMT), to determine which stock could outperform the other over the next five to seven years.
Instead, most of these folks are looking to make a quick buck on the next speculation.
This will end badly, my friend. And I expect the Melt Up to peak – and the Melt Down to begin – sometime in 2021. Ready yourself now.
What's happening today is simple... It's the "Greater Fool Theory."
Folks are hoping that by buying today, there will be a greater fool than them to pay a higher price tomorrow. But think about this for a second...
As I mentioned, we've recently seen multiple rock stars (and Elon Musk!) pushing Dogecoin – which the founder admitted was formed as a joke and should never be worth much.
Once Musk, Snoop Dogg, Gene Simmons, and all the kids in the local high school have put their money to work... where can the next greater fool possibly come from to drive prices higher?
"The single most dependable feature of the late stages of the great bubbles of history has been really crazy investor behavior, especially on the part of individuals," legendary investor Jeremy Grantham wrote earlier this year. "For the first 10 years of this bull market, which is the longest in history, we lacked such wild speculation. But now we have it. In record amounts."
That gets to the heart of it...
To me, what we're seeing now is "really crazy investor behavior, especially on the part of individuals."
The thing is, to make the most money, you want to buy when everyone is fearful and sell when everyone is greedy (to paraphrase billionaire investor Warren Buffett). And right now, individual investors – many of whom are buying for the first time – are darn excited...
As I mentioned in the April 24 Masters Series...
An astounding 28% of all Americans bought GameStop or other viral stocks in January, according to a Yahoo Finance-Harris poll. The median investment, according to the poll, was just $150. The largest group of buyers was men aged 18 to 44. And 43% of these folks said they had just signed up to get a brokerage account in the last month.
So in new individual investors, we have seen a dramatic shift in investor attitudes and behaviors. In short, basically since GameStop (GME), we moved from a stock market boom to an investing bubble.
We may not know the exact date... But the Melt Down is coming. And if I haven't convinced you yet, consider this...
The main index of tech stocks – the Nasdaq – hit another scary record in February. From its bottom, it was up 105% in 47 weeks. To give you some frame of reference, that was the best 47-week performance in the 50-year history of the index.
The Nasdaq has only been up over 100% after 47 weeks twice in history... The last two 100% moves ended in March 2000 and in July 1983. The stock market performed terribly immediately after those huge moves higher. Take a look...
The last two times in history that we saw a market up over 100% in the same short period of time, the Melt Down was knocking at our door. It's as simple as that.
There are several points here. But the takeaway is an easy one...
Market sentiment and performance are both hitting bubble levels. And that tells me the top is near.
I expect the Melt Down to begin sometime this year. And that means the time to prepare is now.
Good investing,
Steve Sjuggerud
Editor's note: The "really crazy investor behavior" we're seeing today is pushing the market to new heights. And according to Steve, it's causing a huge shift in the Melt Up.
Fortunately, there's still time to capture some incredible gains before the Melt Down...
That's exactly why Steve recently hosted a free event. More than 31,000 people tuned in as he detailed what we can expect from the "Final Surge" of this record-setting bull market. Plus, he gave away the names of two stocks that could soar as everything plays out.
If you missed the event, you're in luck... You can still watch the full replay right here. But don't delay... This presentation is set to go offline on Monday night at midnight.