I try to invest rationally, not emotionally. That means that while I never participate fully in a bull market, I also manage to avoid bear markets.
Meanwhile, we have a situation where well over 70% of the U.S. household sector’s financial assets are concentrated in the equity market . Few have chosen to take profits or rebalance their portfolio in what is among the top 10% most expensive U.S. markets of all time, with a forward P/E multiple north of 21x .
Such is human nature. Please let me explain: This is about the structure of today’s market. The elephant in the room. Which is that the most highly overvalued and bifurcated equity market since the late 1990s is occurring at the same time that households have exposed themselves to concentration risk to a degree that they don’t remotely appreciate, or even understand. Over half of the market today is owned by passive index funds.
Put simply, this is a bull market that has been built on the general public investing blindly. This also gets tied up into a demographic problem, but only because the aging and aged throng of baby boomers are behaving as though they are in their 30s, as opposed to their 60s and 70s. Something tells me we are going to see one boom take hold, which is a surge in these currently retired boomers applying for cashier jobs at the local grocery store once the tide goes out.
In a bear market, the buying dries up because even potential bargain-hunters with liquidity are hesitant to come in and support the market as prices deflate. This is why every bear market ends with valuations at stupid-low levels, just as the bubble peak ends at crazy-high multiples.