The stock market is driven largely by emotion.
By some stock market experts’ definitions, the market is experiencing the longest bull market in history.
The bull run is newsworthy, so people talk about the stock market…
The more they read, the more they have “FOMO”1. And FOMO causes them to invest more… And it brings in people from the sidelines who haven’t invested much in the past.
How Much of a Bull Market Is This?
Starting in March 2009, this bull market has returned 324% over approximately 9.5 years.
It’s not that this is unusual as it’s happened before… But values for stocks are considered high.
The P/E ratio of the S&P 500 is over 25, which is about 60% higher than its long term average of 15.7.
Technology stocks, such as FAANG2 are continuing their steady climb that started about 1.5 years ago.
This could continue based on the pervasive nature of power laws throughout nature and business.
With power laws, a few winners suck up all the profits, attention, customers, etc. in an 80:20 or 90:10 distribution.
In other words, Silicon Valley tech companies might be only 10% of the companies out there, but they suck up 90% of the customers and profits.
Doesn’t seem far fetched when you think of Amazon.
Apple, for instance, which has historically (IMHO) been undervalued from a P/E standpoint, is starting to move up to where its software focused brethren, such as Google and Netflix, are.
Among tech stocks, I think Apple is one of the safest. And apparently Warren Buffett thinks so too.
It’s almost impossible to time the market… So there’s never the perfect time to invest.
That said, this market FEELS overheated.
So, it will eventually fall, as it always does…
As such, some strategies to avoid carnage when a downturn happens are:
keep some dry powder around in case you would like to play defense instead of offense.
Or if you don’t like roller coasters.