As singer-songwriter, Aimee Mann, poetically observes, “The moth [will] beat his wings ’til he burns them black”
…and so will many individual investors.
The dazzling glow of a rallying stock market draws them to the flame of “easy” winnings. But just about the time the winnings become seductively easy, the scent of scorched wings fills the air. Share prices tumble and zillions of investor-moths scorch their savings.
This process repeats as predictably as…well…a moth to a flame…
The telltale signs of a too-hot market are only certain in retrospect. But that doesn’t mean you can’t feel the heat building up ahead of time. The classic signs of an overheated market include both technical and anecdotal phenomena. A technical sign of a topping market would be something like a multi-year low in the VIX Index of implied volatility…or low levels of cash in equity mutual funds. An anecdotal sign would be something like a cab driver telling you his favorite stocks…or a celebrity flaunting his/her stock-trading savvy.
As it happens, some of these signs are evident today, in the here and now. The VIX Index — also known as the “Fear Gauge” — just hit its lowest level since right before the market peak of 2007. Cash levels in mutual funds total little more than 3% of total assets — the lowest level ever recorded! The last two times cash levels dipped below the 4% mark (1999 and 2007), stocks tumbled shortly thereafter.
As troubling as these technical signs may be, they lack gravitas without corroborating anecdotal evidence. We all have our favorites, but almost no type of anecdotal evidence terrifies as viscerally and persuasively, as “the celebrity-turned-stock-expert.”
During the waning days of the epic tech-stock bubble of 1999, for example, Barbara Streisand made headlines as a self-proclaimed stock market wizard.
“Barbra Streisand was talking with her good friend Donna Karan on the phone last fall,” Fortune Magazine reported in June of 1999, “and she told Karan she’d made $130,000 on eBay stock in just one month. Karan was duly impressed. As Streisand tells it, ‘She said, “Oh, can you do that for me? I’ll give you a million dollars to invest for me.” And I said, “You’re crazy, why would you do that?” She said, “Well, it sounds like you’re making so much money, so do it for me.” So I said, “I’ll do it if you’re willing to lose it. Are you willing to lose a million dollars? That’s the only way I’m willing to do this.”’
“The result was stunning,” Fortune continued, “After five months of intense trading, Streisand managed to nearly double her friend’s stake, to $1.8 million.”
The stock market tumbled a few months later. As for Streisand’s post-bubble investment acumen, both she and the Internet are eerily silent. The stock-trading exploits of the legendary songbird have all but disappeared from the public record.
Not to worry, sixteen year-old actress, Rachel Fox, has become the celebrity stock-trader du jour! Fox — who was actually a year younger when she posted the video below — describes herself as “one of the only 15-year old stock-trading actresses around,” and reveals that she “makes a lot of money doing it.”
“I make over 64% per year on my investments,” says Fox in the fifth episode of her video series, “Fox on Stocks.” And if you wish to learn how to emulate her investing success, the teenage actress explains, just tune in to Fox on Stocks.
Lesson One (which you can find at minute 1:56 in the video clip below): “Break out your iPhone…” Intrigued? Then check out the entire video for yourself:
Your editor wishes the cheery Miss Fox continuing success, both on the big screen and on the small iPhone screen that’s running her stock market app. But while racking up 64% returns, your editor hopes Miss Fox will remember that stocks sometimes go down. Or, to rephrase that observation in 2013 bull market terms, stocks don’t always always go up. And they especially don’t always always go up when almost everyone has convinced themselves that they do.
Where are stocks going from here? Your editor has no idea. In fact, like a jilted spouse, he is often the last to know. That said, he has observed that stock market lows rarely coincide with multi-year-low VIX readings, all-time low cash levels in mutual funds and “how to” investment advice from Hollywood celebrities.
for The Daily Reckoning
Eric J. Fry, Agora Financial's Editorial Director, has been a specialist in international equities for nearly two decades. He was a professional portfolio manager for more than 10 years, specializing in international investment strategies and short-selling. Following his successes in professional money management, Mr. Fry joined the Wall Street-based publishing operations of James Grant, editor of the prestigious Grant's Interest Rate Observer. Working alongside Grant, Mr. Fry produced Grant's International and Apogee Research, institutional research products dedicated to international investment opportunities and short selling.
Mr. Fry subsequently joined Agora Inc., as Editorial Director. In this role, Mr. Fry supervises the editorial and research processes of numerous investment letters and services. Mr. Fry also publishes investment insights and commentary under his own byline as Editor of The Daily Reckoning. Mr. Fry authored the first comprehensive guide to investing internationally with American Depository Receipts. His views and investment insights have appeared in numerous publications including Time, Barron's, Wall Street Journal, International Herald Tribune, Business Week, USA Today, Los Angeles Times and Money.
“Once you understand it, it will be so easy.” LMAO.
Ah, to be 15 yrs old again.
It was a informatory post and it has a significant meaning , thanks for sharing the information. Would love to read your next post too…….
"There has been an issue that has preoccupied my mind for a long time," writes Dr. Marc Faber. "In economics, it is generally accepted that if the quantity of money and credit is increased, prices will rise… However, since economics is so complex… I question whether the expansion of central banks' balance sheets and policies of zero interest rates could have a deflationary impact…" The good doctor wrestles with the question, in today's essay...
The Biotech iShares ETF is up 23% since the Oct. 15th bottom. No, that is not a typo. Biotechs have torched the S&P over the past two months--more than doubling the returns of the big index. And biotechs as a group are up more than 38% year-to-date. In fact, since we first highlighted the June comeback, the Biotech iShares have gone nowhere but up.
The oil market has been under siege for six months. From service providers to producers this downturn has been painful. Of course, we’ve known all along that oil prices were a little toppy over the summer. In fact, when asked just how low oil prices could go I usually answered with a simple “lower than you’d expect…”
Our forecast that Cuba would be open and integrated within 5-10 years is on track after yesterday's big announcement. Ahead of schedule, even. Click here to see how some investors have profited and what the island's likely future is...
The opportunity to sell and install LEDs is enormous. We’re talking about over a billion lighting fixtures. And the areas with the largest potential -- like parking lots -- have barely begun to change. Banker to the presidents Chris Mayer says you could triple your money in this new tech trend. Here's what you need to know.
It's a theme we've shared with you since April. And it's only gotten worse. The gaming industry has come under all sorts of pressure--a situation I first noticed in the charts. The powerful, multi-year uptrends started showing cracks. And it wasn't long before those cracks turned into gaping holes you could drive a friggin' truck through. That's where things stand today.