90% of the time, don't let the naysayers scare you out of the market; The 10% of the time you should get defensive; My interview on the Stansberry Investor Hour; Carnage this year for short sellers

1) Another day, another chart (or two) about how richly valued the market is right now...

These two come from the latest investor letter of my friend Doug Kass of Seabreeze Partners. (Doug kindly gave me permission to share his full letter with my readers – you can see it here.)

In Doug's letter, this first chart is preceded by "Buyer Beware" in large text:

And here's the second chart:

Meanwhile, journalist Andrew Ross Sorkin, author of the new book 1929: Inside the Greatest Crash in Wall Street History – and How It Shattered a Nation, has recently been warning about parallels to 1929.

He has been in a recent Vanity Fair article, a Bloomberg podcast episode, and a 60 Minutes feature.

And here's another sign of a bubble: Volatility Shares has filed to launch 27 3x- and 5x-leveraged single-stock exchange-traded funds. (This new post on social platform X has a list.)

Here's the problem I have with all of these bearish arguments...

Morgan Housel, a partner at Collaborative Fund and New York Times bestselling author, wrote:

By my count, we now have a stock bubble, a bond bubble, a gold bubble, a (new) housing bubble, a bitcoin bubble, a debt bubble, a profit bubble, a margin bubble, a Fed bubble, a dividend bubble, a social media bubble, a health care bubble, and an [insert thing you don't like] bubble.

But here's the thing... Housel wrote this in December 2013!

Since then, the S&P 500 Index has climbed roughly 270%.

In my more than 25-year investing career, there has never once been a time when there weren't plenty of very smart, experienced investors predicting nothing but gloom and doom ahead.

As I've said previously in my daily e-mails: 90% of the time, don't let them scare you out of the market – and stay the course.

2) Note, however, that I didn't say 100%...

The other 10% of the time – maybe one year out of 10 – it makes sense to batten down the hatches and get defensive because the market really is going over a cliff.

Setting aside weird black-swan events like the COVID-19 crash, this tends to happen when one of two things are true:

• The economy goes into a deep recession (like 2008), and/or
• Stocks are in bubble territory (like the Internet bubble that peaked in early 2000).

I don't think either of these things are true today.

While the economy is slowing down, especially job creation/growth, it's still quite strong. And even if you think there is a bubble in AI spending, I'm not convinced that, even if it bursts, it would trigger a market crash... as it's much smaller than the housing and debt bubble that burst in 2008.

As for valuations, they're high. But they're nowhere near the extremes we reached in early 2000. Here's an interesting data point from Ed Elson in Scott Galloway's latest Prof G Markets newsletter:

... valuations among big tech AI companies are high, but they're not crazy high. The 24-month forward PE ratio of the Magnificent Seven is 27x. In the year 2000, at the height of the tech bubble, the top 10 stocks traded at 52x forward earnings. So I would say, yes, a bubble is forming, but I don't think we're at a point where we can say it's about to pop.

As he continues (correctly):

That brings me to another point. There's a general feeling that we should try to predict when recessions will hit. First, that's impossible. Second, even if you get it right, the impact on your portfolio is actually not as meaningful as you might think. If you're investing over five years, 10 years, 15 years, investing at the highs is almost no different.

Lastly, Elson points out (again, correctly) that recessions don't happen suddenly. So if you're paying attention, there's plenty of time to position your portfolio defensively. Here's more:

The other thing to remember here is that you actually have a lot more time than you think. In recessions, historically, the average amount of time between the point at which the stock market peaks and the point at which the recession is officially called is nine months. You don't need to call the recession before everyone else does. You might want to because you'll feel smart, but the reality is there actually isn't that much alpha in doing that. If you really wanna make money, keep on investing over the long term.

I would also add that the high valuations of the Magnificent Seven are supported by exceptional earnings growth. Take a look at this chart that featured in yesterday's edition of the free Stansberry Digest e-letter:

I continue to monitor a range of indicators. And I'll let you know when I think we're entering one of those 10% periods when it's time to get defensive.

But I still don't think we're there yet...

3) I recently joined my colleagues and friends Dan Ferris and Corey McLaughlin on their Stansberry Investor Hour podcast.

We covered plenty of territory in the 65-minute podcast episode...

I opened with discussing how I became a "make money" investor... my simple method for picking winning stocks... and a few lessons that I've learned over my long career in the market. (One of them is something that longtime readers will know well – letting your winners run!)

I also shared some thoughts on tech giant Salesforce (CRM) and some players in the AI space – including Palantir Technologies (PLTR).

Regular readers will be familiar with some other topics I covered:

• The cannabis stock bubble
• Chinese stock scams
• The positive outlook for Alphabet (GOOGL) and Meta Platforms (META)
• Keeping an eye on Lululemon Athletica (LULU)
• The pitfalls of short selling

I also shared my most speculative stock idea today.

Check out the full Investor Hour episode for all these topics and more – again, you can see it here.

And thanks for having me on the show, Dan and Corey!

4) Speaking of the pitfalls of short selling...

While I think – and have written many times – that stocks like QMMM (QMMM) are frauds and ones like AppLovin (APP) and Palantir are wildly overvalued... I have also said that 99% of investors shouldn't short stocks.

It's just too hard and too dangerous.

Just consider the carnage among short sellers this year. As this new Financial Times article notes, short sellers are blaming retail investors for their worst returns since 2020:

A basket of the 250 US stocks most popular with short sellers has surged 57 per cent this year, hurting the traders betting on those shares' decline, according to calculations by data group S3 Partners.

That marks the best run for heavily shorted US stocks since 2020, when the basket gained 85 per cent.

Take a look at this chart from the article:

I'll say it again... Considering how dangerous it can be, most investors shouldn't short stocks. You're better off just avoiding certain stocks rather than shorting them.

Best regards,

Whitney

P.S. I welcome your feedback – send me an e-mail by clicking here.