Investor Points of Few – The Market’s Bubbles, Toils & Troubles

“The time of maximum pessimism is the best time to buy and the time of maximum optimism is the best time to sell.” – John Templeton

By Alan Steel

What’s with all the bubble chat anyway? Is everything really about to burst? All this stirring of feeble and often factless speculation has left few if any industry sectors or investment activities without at least the minor stain of toil and trouble. You’d think Hamlet’s witches had brought their cauldron to every financial newsdesk, “for a charm of powerful trouble, like a hell-broth boil and bubble.”

And these near invisible “inflations” are alleged to be everywhere, except of course where we’ve been taught inflation should be. On that broken scale of GDP and its ilk there seems simply not enough growth to register a positive measure – at least not the kind that nods its head towards more significant interest rate rises than the erstwhile piddling and sporadic 0.25% tick stateside whenever the political coast is clear.

In fact, the bubble of what we can not seem to accurately measure is perhaps amongst the only inflations worth noticing and mentioning; their value unrecognised almost everywhere but the much maligned stock markets, corporate profits, retained household income and employment levels. All those apps and inventions, the free software as a service (SAAS) upon which new businesses are being built, the social media and internet that has redefined distribution channels and fundamentally changed the ways in which we communicate and engage…

These types of unmeasurables are considered unmentionable simply because they don’t fit the moulds.

No, what seems to be far more inflated are our fears of what can be made monstrous, rather than any real life economic beast lurking behind things like corporate buybacks, investor sentiment, fangless FAANGS, the ménage à trois of multi-day moving averages, and the near Tigger-like oil prices now bouncing through an apparent $40 to $80 price range.

Perhaps, this is more about our Lizard Brain-driven evolutionary need to perceive each shadow raised by the likes of the coin-flipping merchants of market menace – the Lords Voldemort of Roubini, Mauldin and Dent – as sabre-toothed tigers waiting hungrily in the tall Savannah Grasslands of our misspent youth 100 million years ago.

Our nature addicts us to these scary premonitions – the communal worry and common bond of huddling together at the stock market water’s edge in Index Trackers, cash and deposit accounts, as the alligators of lost returns bite and crunch into long-term investments and retirement fund earnings.

For over eight years the bubbles have bubbled and toils have troubled but no one seems to really know what’s cooking in that pot.

Regardless, the listeners have chosen to lend their ears to only the most vocal of Voldemorts, even as their mystical algorithms, guarantees without guarantee and secret investment strategies continue to inflate and then pop in the air – just out of reach of any good returns.

So how long now must we wait? What bubble will finally burst the stock market’s seams?

Rest assured only that the black swans will come again, just as they’ve come before, but this time flying with different financial feathers.

And all the premonitions in the world won’t change that.

Opportunity is a funny thing, folks. For the few it rather depends upon the many to continue to behave in the way that they always have; fearing their fears and flying in the face of common sense towards whatever safe haven presents itself in a headline sales pitch.

That’s what makes Warren Buffett’s voting and weighing machine work so well. The market behaves like a popularity contest in the short term – stock prices change rapidly based on the environment, while the underlying value doesn’t change.

In simplest terms, you try not be on the wrong side of that particular measure, because that one actually works.

Just like good advice does when it tells you that you’re not trying to continually avoid all the bubbles, toil and trouble.

You’re trying to take advantage of it.

Alan Steel, Chairman, Alan Steel Asset Management



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