Another Way I Can Tell We're Near A Market Top

The other day, I was waiting for Costco to open up so I decided to stop by and get some breakfast before they opened. Just as I'd sat down at my table, a guy happened to ask me what I do for a living. When I told him what I did and talked to him for a bit, another guy had overheard me talking at his

table. So when he was leaving, (knowing that I write stock market newsletters for a living), he came by to give me a "stock tip".

I point this out, not because I'm not open to other people's input but because of how I've observed people to be near market tops. You see, when markets have been declining or recovering, they seek out advice. In other words, he would have been likely to say, "What is your web address so I can follow what you're saying?"

But near market tops, most people feel like a pro. It's when they get cocky and arrogant and they feel like everything they touch turns to gold. However, what they don't realize is that they've just been in the latter stages of a bull market which tend to have a lot of momentum behind them. They confuse a stock market trend with their own expertise.

This guy was very comfortable and was bragging about how the market was doing so well. I could tell he wasn't even looking for a turning point at all and he didn't seem to realize how overvalued the overall market was...he was simply caught up in the recent day-to-day action of the stock market going higher. You could say he's an emotional investor rather than a Logical Investor.

Shortly after my breakfast, I read a story from Business Insider about a 39 year old who'd sold all he had (house, car, kids toys, etc.) and put it all into bitcoin. Well, we know that bitcoin is in a bubble. Yet it's when the "average Joe" seems to build so much confidence in it because all they see is it going up and the hype around it. Yet, once again, we have a story of someone who is getting overly confident likely near a market top. He shoved all the chips into the middle of the table and risked it all. (Not a wise move. No potential gain is worth you risking everything when you're almost 40 years old).

I remember, back in 2000, not only could I not talk my clients out of raising some cash and taking some profits on their stocks but I couldn't talk my fellow broker friends into it either. I knew it was a euphoria and that they'd lost their minds and that this wouldn't end well (because in history, it's always played out like this). Yet they choose to ignore valuations because "this time it's different". And it never is different. They just want it to be...and it's their emotions talking and all logic has been thrown out for the thrill that they're currently experiencing.

So when you see "average Joes" that are IT pros, plumbers, electricians, taxi cab drivers, etc. (people who don't work in the financial field) being overly confident and very focused on their stock portfolio, you know you're in a dangerous period.

It's why Warren Buffett says, "Be fearful when others are greedy". In other words, when they're stumbling over themselves to buy, you'd better be very cautious because the masses are usually wrong BIG TIME particularly near market tops and near market bottoms. And the financial media will help ag on those widely held beliefs which seems to affirm to the average Joe that they're on the right track, when it couldn't be further from the truth.

God bless!

Thanks so much. It's around 25% up on original investment. But I am trying to weigh your outlook for the future of those positions against your concerns for a correction. Don't want to be greedy, but don't want to run scared. Trying to remove emotion from the formula. I have noted your forecast on where those positions are likely to go, and for most, that

that's an additional huge upside.

Another consideration is to sell half of your shares (ensuring some profit) and placing a stop-loss on the remaining shares around your breakeven point. It's a tactic when battling between turning gains into losses and also not being a part of a continued run-up.

Thanks so much!


You're welcome. Glad those suggestions helped. It gives you some considerations about what you think you should do.