Knowing when to take the money and run in the stock market has perplexed institutional and armchair investors for years. It is a conundrum for too many people. If you sell too early, you risk losing out on more gains. If you sell too late, you place your profits in danger. One investment legend that has permeated the New York Stock Exchange since 1929 still rings true today.
Joseph Kennedy, the father of President John F. Kennedy, claimed that he knew when the financial markets were near the end of the bull market, and it was time to hit the sell button for his stocks: when shoeshine boys start giving investment tips. While these young whippersnappers are a relic of the past, this concept has evolved over the years, from taxi drivers to grandmothers to Redditors. Are investors approaching high noon for the everything bubble?
Dumping Your Stimmy Into Stocks
What will you do with your $1,400 stimulus check? Pay the rent, eliminate your debt, or join the craze on Reddit’s Wall Street Bets and emulate the Wolf of Wall Street?
According to an online study by Deutsche Bank, half of young retail investors (18 to 34) plan to spend close to half of their stimulus checks on stocks. The same survey found that 37% of respondents between 35 and 54 will invest their stimulus checks in the equities arena, and just 16% of people over 55 will build positions in the stock market.
The poll noted that more than half of all respondents increased their investments over the last year, and 45% invested for the first time. This has been facilitated by the many zero-commission and mobile trading platforms, particularly Robinhood.
In a report on its findings, the German financial institution explained that the influx of new retail investors has been a critical driver of the rally, calling the noteworthy 2020 capital inflows a “retail wave.”
“Behind the recent surge in retail investing is a younger, often new-to-investing, and aggressive cohort not afraid to employ leverage,” the bank wrote, adding that approximately $150 billion could be injected into U.S. equities.
Party Like It’s 1929 or 1999?
In the aftermath of the coronavirus-induced meltdown, the stock market has been on fire, reaching all-time highs, thanks to trillions of dollars in fiscal and monetary stimulus. Despite millions of Americans unemployed, businesses shutting down, and 525,000 people dead, investors have enjoyed a portfolio that might make them wonder if they are better at trading securities than Warren Buffett.
A similar euphoria, fueled by easy-money policies and speculation, has been felt many times before, especially in 1929, 1999, and 2007. The results have always been the same: a bloodbath on Wall Street that decimates the young people, the middle class, and the retirees. And this is not only concentrated in the United States.
Last year, Liberty Nation reported on the Chinese government publishing bullish propaganda to encourage the population to scoop up stocks in the bull market before it is too late. It was a tactic previously employed in the late stage of the 2015 bubble, causing millions of novice investors to inevitably lose money. The latest downturn suggests a comparable hemorrhaging as the Shanghai Composite Index has plummeted 7% over the last month, thanks to an expected policy tightening.
Although the Federal Reserve’s 2021 mandate appears to be never letting the stock market crash ever again, the recent volatility among the leading benchmark indexes might point to a substantial correction – or a path to the slaughterhouse. For seasoned traders, this could be a buy-the-dip opportunity. For the neophyte men in tights, this is a time to panic.
Whatever the case, the power players will exit the financial colosseum unscathed. Everyone else will be left to shed blood. As the head of Berkshire Hathaway once said, “Be fearful when others are greedy, and greedy when others are fearful.”
A Permanent Scar?
Many millennials have been scarred by the market crashes, having seen their parents and grandparents financially destroyed by the dot-com bubble, the subprime meltdown, and the coronavirus-induced crash. This fear of investing has kept millions of young people on the sidelines, potentially missing out on tremendous windfalls. Before the arrival of zero-commission trading, there were many entry barriers – spending $10 per trade, especially for one or two shares, can be intimidating. Now that both millennials and Generation Zers have gotten a taste of a bull market where everyone is a genius, will they withstand the bear attack when interest rates normalize, monetary policy tightens, and the market goes through a cleanse? When the charts show red, our brains say hold the line. But our hearts push us to sell.
Read more from Andrew Moran.