in their homes). And she's going to be gone for a few days. Additionally, we've got a marriage teaching at church from our pastor, Keith Craft of Elevate Life Church www.elevatelife.com on Valentine's night.
So Lisa and I decided to celebrate Valentine's day a bit early this year, in light of all of that. In fact, the image above is a shot of part of our master bathroom, but I'll spare you the rest of the details.
Tonight, we'll be heading out to my favorite steakhouse in Dallas, Ruth's Chris. Wahoo!
So I got to thinking about how "love" is being celebrated right now between husbands and wives, etc. and how at the very same time, people are the most "in love" with the stock market that I've seen in a very long time.
Also, I'm seeing signs that retail investors (which tend to be very inexperienced and emotional traders and investors) are going "all in" right now. We're seeing things such as a lot of account openings as people have the FOMO (fear of missing out). The E*Trade news from yesterday is a great example of this. For more on that, see my post from yesterday, here: https://www.themaven.net/seanhyman/fundamentals/when-the-average-retail-investor-regular-investor-gets-excited-about-being-in-the-market-it-s-a-qReS-L7BxUWXV4viR78KVw
The average retail investor (mom-and-pop investor) is an emotionally led investor. They invest because of the excitement and because of the fear of missing out. They invest because of all of the money they hear their buddies are making in the stock market, etc. All emotional reasons. There's not ONE logical reason why they're invested. They don't know how to value stocks. All they hear is what they're hearing all around them (including the "good news" they've heard on the nightly news) and so they can't open up an account fast enough to cash in on the "quick riches". (Christians, by the way, are no better than the world at this even though the Bible cautions against quick riches. Many of them don't know that's in the Bible and others do but still want to do what they want to do).
I've circled below when the most regular investors get involved in the market...towards the tops of the markets in 2000, 2008 and the top that either is forming or has formed now.
And even with the recent HUGE sell-off that's happened, they're still eager to "buy the dip" because it seems like it's always worked in the past for them, so why not now too?
The financial media reinforces their thoughts when they say "stocks are cheap now and should be bought". But stocks don't get a much cheaper price-to-earnings ratio (P/E) just because the market gets slammed for a day or two or even a week or so.
No, it takes a bonafide downtrend in stocks to take stocks from their present state of overvaluation to a point of undervaluation. And people never think the next downtrend can come because they always come on the back of such "great times" with "great news". After all, a downtrend starts from the highest of highs set in the stock market.
People get swept away by the euphoria of it all and since they're so emotional about it, they don't think straight (using logic). That's why I run a newsletter called The Logical Investor. We use metrics that are very measurable. I never ask myself how I "feel" about any stock that I hold. I simply look at the fundamental, technical and sentiment metrics of the system that I use.
What happens next is that a ton of investors get sucked into the "bull trap" as they load up on the dip that should never be bought. And by the time that they realize that this is more than just a dip, they're down so much that they either begin to sell or they have to hold until (one day) when the market comes back to these levels. And many times that can take at least 5-10 years!
Many of you reading this (that are not my subscribers) can probably relate to getting sucked into these emotional trades, like back in 2000 and 2008.
I encourage you to get plugged into a defined system like we use in the Logical Investor to define when a stock is overvalued or undervalued, to determine if a company is truly solid or if its in fact weak.
We dodge the weak and the overvalued and we focus on the solid companies that are undervalued. We've done this through every market cycle and have done well OVER TIME. Remember, true investing is over years (2-4 year holding time typically for us in the Logical Investor).
Come join us at www.seanhyman.com if you have not already. And if you DON'T have a trusted, defined system that you use, then come join us in the Premium tab and sign up as a subscriber for $97 per year and gain investment knowledge like you've probably never had before.