# Is the stock market in a state of Euphoria right now?



## Pluto (Sep 12, 2013)

In 1999, and 2000 any one who didn't have Nortel stock just wasn't with it. Euphoria, And then the fall. 
In 2007 - be there or be square: Yep, that time it was potash. Everyone knew the world needs potash to feed the world, and they aren't making more of it. And then the fall. 

Of course both times ended in deep despair and pessimism. And out of pessimism, another bull market arose. Even though history is plain to see, the future isn't. And what clouds the view of the future? Euphoria. The need to stay in that wonderful state, the need to see ones portfolio value go up and up and up forever. Bull markets begin after intense pessimism, fear and anguish. They end in Euphoria. And during the state of euphoria there are all kinds of rationalizations about why one should go all in now. 

So, what is it this time? What is it people are euphoric about, if anything? And should you care? For people who are saving and dollar cost averaging etf's you probably shouldn't care. But for someone who has saved a lot of cash, and suddenly starts thinking they should invest in stocks, I think you should care. 

Last year I noticed a smattering of euphoria in Riets, as they recovered from their 2009 pounding, and reached their former highs. Some claimed it was a great time to buy Riets, and they were bound to go higher. Well, they didn't go higher. 
More recently we have TSLA for example. The stock is priced as if it is selling over ten million cars a year, even though its actual sales are paltry in comparison. Yes I know, its a 50% grower, or something like that. They said similar things about about Nortel, and Potash. And what happens to the general market soon after Nortel and Potash started to lose their shine? 

This cycles' euphoria plays have been losing their shine. All the while, we hear, as usual, soothing words that everything is OK. For those who have saved a pile of cash, and are thinking of buying stocks, remember, you never hear soothing, don't worry, be happy words when the best value is abundant.


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## Just a Guy (Mar 27, 2012)

I'd say the housing market has to be up there...many postings on this board about buying overpriced properties at any price...no downside.


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## Nemo2 (Mar 1, 2012)

Every silver lining has a cloud.


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## Eclectic12 (Oct 20, 2010)

That's where YMMV vary as ...



Pluto said:


> In 1999, and 2000 any one who didn't have Nortel stock just wasn't with it. Euphoria, And then the fall.


For Nortel ... that's where it paid to have a handful of shares from BCE stock, a bit from the index and to buy a bunch for under $3 and sell for $11.




Pluto said:


> In 2007 - be there or be square: Yep, that time it was potash. Everyone knew the world needs potash to feed the world, and they aren't making more of it. And then the fall.


Yes ... those were good times ... bought for $28, sold 2/3 for for $101 and rebought at $50.




Pluto said:


> ... Of course both times ended in deep despair and pessimism. And out of pessimism, another bull market arose ...
> And what clouds the view of the future? Euphoria. The need to stay in that wonderful state, the need to see ones portfolio value go up and up and up forever.


 ... having been through several cycles and having a plan made it easier to tune out the noise.




Pluto said:


> ... All the while, we hear, as usual, soothing words that everything is OK. For those who have saved a pile of cash, and are thinking of buying stocks, remember, you never hear soothing, don't worry, be happy words when the best value is abundant.


Or better yet ... learn to tune out the market noise and find a process one can live with.


Cheers


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## GoldStone (Mar 6, 2011)

CNN Fear and Greed is neutral @ 55.

Long bonds (TLT) are up 16% YTD. 6% better than S&P 500.

Defensive sectors -- Utilities and Health Care -- are two best performing S&P 500 sectors YTD. 

Cyclicals are -5% YTD.

Europe is -9% YTD. Asia Pacific is -3%. Emerging markets are flat.

That is clearly some crazy euphoria....


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## lonewolf (Jun 12, 2012)

Pluto said:


> remember, you never hear soothing, don't worry, be happy words when the best value is abundant.


 Right before the crash of 1987 was the hit song don't worry, be happy, this simple song played on & on before the crash then quickly vanished after the crash 

Now instead of hearing those words I see the exact words in a post. I m ready for bear.

When euphoria is high it is easier to buy, just has to be the proper tool i.e., a put


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## lonewolf (Jun 12, 2012)

GoldStone said:


> CNN Fear and Greed is neutral @ 55.
> 
> Long bonds (TLT) are up 16% YTD. 6% better than S&P 500.
> 
> ...


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## sags (May 15, 2010)

View attachment 2465


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## jcgd (Oct 30, 2011)

You say it's euphoria, but I don't see it. Nobody is euphoric, to the point I'm almost sick of listening to the bearish. It's so old, the bears going on and on and on and on and on and on how the next correction or crash is imminent. More than a few of the members here are borderline perma bears. I've seen two major themes on this board. The first was that things were too bad in the economy and the world so the stock market was a losing bet. The next was the stock market shouldn't have risen but did anyway so the stock market is a losing bet. The best way to be the last five years was 100% invested.

Now, I'm not going to say that the market is headed up... because I don't know and don't care. But what I would consider a contrarian view at this moment would to be fully invested. 

The reason I think this is because the people _who know they know_ seem to believe the opposite.

It's my believe that it's less work to be fully invested and right 75% of the time rather than try to figure out when the market might be going down the other 25%. Buying the index is like a weighted coin flip. Most of the time it works out in your favour as long as you don't make stupid bets. Betting on tails is just too damn risky for me.


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## Butters (Apr 20, 2012)

http://www.researchaffiliates.com/AssetAllocation/Pages/Equities.aspx


US Volatility % 15.2 seems low to me


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## GoldStone (Mar 6, 2011)

jcgd said:


> It's my believe that it's less work to be fully invested and right 75% of the time rather than try to figure out when the market might be going down the other 25%. Buying the index is like a weighted coin flip.


Damn right!

1. Pick any day going back to 1957. The market is higher one year later ~75% of the time.

2. When the market has a positive calendar year, 3 out of those 4 years see double digit gains.

3. Since 1897, one out of every three years the market is up twenty percent or more.

4. If you pick any starting date in the S&P 500, stocks are higher ten years later 95% of the time.


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## Video_Frank (Aug 2, 2013)

Pluto said:


> In 1999, and 2000 any one who didn't have Nortel stock just wasn't with it. Euphoria, And then the fall.


APPL at record highs yet the pimping continues.


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## GoldStone (Mar 6, 2011)

AAPL trades at lower than market multiple.


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## lonewolf (Jun 12, 2012)

GoldStone said:


> Damn right!
> 
> 1. Pick any day going back to 1957. The market is higher one year later ~75% of the time.
> 
> ...


 Maybe nominal returns the market is up fib 62% of the time, in real returns adjusted for inflation & or in real money (gold) the returns have not been as good.


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## lonewolf (Jun 12, 2012)

@ one point in Oct this year the Japanese Niki set a record for the largest percentage of shorts compared to longs for any stock exchange. I still think the 09 low will be taken out by the DJI


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## Video_Frank (Aug 2, 2013)

GoldStone said:


> AAPL trades at lower than market multiple.


"Apple Inc. shows a EV/EBITDA ratio of 9.27 for the next 12 months. This is higher than the median of its peer group: 8.33"

Source.


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## Just a Guy (Mar 27, 2012)

Apple is one of the only profitable companies in its peer group...

Not to mention the amount of cash it has sitting around.


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## GoldStone (Mar 6, 2011)

Video_Frank said:


> "Apple Inc. shows a EV/EBITDA ratio of 9.27 for the next 12 months. This is higher than the median of its peer group: 8.33"
> 
> Source.


Peer group includes a bunch of old tech companies: HP, MSFT, EMC, INTL, IBM. There is only one new tech company on the list: Google.

Is it a valid peer group? Me thinks not.


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## Video_Frank (Aug 2, 2013)

Blackberry had piles of cash back in 2008, too. For the life of me, I can't understand how people on this forum talk about Apple's rosy future without seeing how it can crash and burn like Blackberry with no warning. It appears to be a stunning lack of critical thought.

"If there is one thing that is certainly becoming clear, it is that ‘too big to fail’ doesn’t apply in the world of technology." Source.

How about this thread, on the total crash of GT Tech? The pimpers never saw it coming. Apple's stock price could be affected as the fallout from this continues.

Hey, I hold APPL as part of my VTI holdings, but I would never let a single stock upset my AA.


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## GOB (Feb 15, 2011)

Comparing AAPL to GTAT? Give me a break. GTAT went bankrupt because of the shrewd deal that Apple made. 

Apple is where it is for a reason. Counting the share buybacks, it's not even at all time highs yet. The biggest company in the world growing at a 20% clip and dominating its industry? That certainly deserves at least a market multiple.

If you can't see the difference between management and company philosophy of Apple and Blackberry, then stay far away, because you don't have a clue.

Believe me, I think very critically about my investments and I've done quite well.


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## humble_pie (Jun 7, 2009)

Gob a comforting detail is the fact that he couldn't be a pro short, AAPL is too big a market to be manipulated. 

forum still has a couple amateur stock pumpsters on board, though. In the penny stocks.


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## dogcom (May 23, 2009)

I would say it is more in a state of what else would one do with money until the bond market rates can no longer be held down and the manipulation from central banks must end.


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## swoop_ds (Mar 2, 2010)

My dollar cost averaging into e-series is still carrying on. I guess I could turn the tap off but no one has any idea when everything is going to fall apart. It could be by year end, or it could be the 'correction' we had last month is all that'll happen for awhile.

I think it's a little different if you have a lump sum to invest but even then, for all we know it's up up and away for awhile yet.

If you follow the get rich slowly philosophy you'll do fine. If you want to get rich quickly, you may, or more than likely, you won't.


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## Just a Guy (Mar 27, 2012)

Video_Frank said:


> Blackberry had piles of cash back in 2008, too. For the life of me, I can't understand how people on this forum talk about Apple's rosy future without seeing how it can crash and burn like Blackberry with no warning. It appears to be a stunning lack of critical thought.
> 
> "If there is one thing that is certainly becoming clear, it is that ‘too big to fail’ doesn’t apply in the world of technology." Source.
> 
> ...


first off, I don't think anyone says apple can't fail...but it won't be overnight. Would I buy apple at today's price, probably not...would I sell my stake, not right now.

You compare apple (computers, phones, tablets, music sales, software, software sales, watches, etc.) to one trick ponies like blackberry and GT? That is equally unrealizitic. GT's stocke surged over 100% a year ago just because apple confirmed it had a contract with them???nothing different than the day before, still not profitable, yet the company doubled on "potential". 

Apple has been around for nearly 35 years, they are making prime margins, record sales...what exactly are they doing to make you feel they could fail overnight? 

Apple probably will go down eventually, but their fall will be more like ibm and Microsoft than gt or blackberry.


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## Pluto (Sep 12, 2013)

1. Justaguy: Yep. I agree: buy property at any price = euphoria. the rationalization is We are buying for the long run. Critique is, in the long run we are all dead. 
2. Electric12. You are a man after my own heart. 
3. Godstone. When defensive sectors move up like that suddenly, some market movers (institutions) are showing concern about the appreciation potential of stuff they sold, and move into defensives stocks.. When market movers show such signs, I get cautious, not complacent. 
4. Lonewolf: Yes! The rally is thinning. even though Us indexes hit record highs, most stocks have lost momentum. 
5. jcgd: recently most who know they know think being fully invested is the thing to do right now. Apparently the % bulls reached extreme highs this year. (PS. I'm not trying to tell anyone what to do.) 
6. SheaButters: If I read your kink correctly US 10 year expected return = .7% and Canada 2.7% I have more faith in this chart than I do in the dreams of the euphoric. 
7. Video_Frank & other aapl folks: I own AAPL. NO plans to sell it yet. AAPL just came through about 2 years of pessimism, to break out of a 2 year cup and handle. Go AAPL. This is not euphoira. This is real. However, aapl is just one of a very few hitting new territory. When it looses its current momentum it might be wise to reassess. One might lose recent gains in a general down draft that takes the good down with the bad. Some may be comfortable with a buy and hold approach and hold through thick and thin. doesn't bother me. I'm not trying to tell people what to do.


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## Pluto (Sep 12, 2013)

Pros and cons of Euphoria indicator. 

One pro is all bull markets end in some degree of euphoria. A con is, it is imprecise. Its an approximation of a top. It can go on for a long time before it finally dissipates, and moves into despair. 

Last summer, apparently % bulls hit extreme highs. the theory is that would be somehow foreshadowing, in a contrary way, the the Sept pullback. It wasn't just oil, and oil stocks. My Canadian banks got hit, and on this recent rebound, even though some US indexes got to new high territory, my banks didn't get back to where they were. Hmmmm. I get the intuition my darlings lost that lovin' feeling, and I'm about to be dumped. I'm thinking, should I dump them first?


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## avrex (Nov 14, 2010)

lonewolf said:


> Right before the crash of 1987 was the hit song don't worry, be happy, this simple song played on & on before the crash then quickly vanished after the crash


Actually, Bobby McFerrin's song was released almost a year after the Oct 1987 crash, in Aug 1988.

I guess he was telling us to not worry 'about all the money that we had lost in the stock market crash'.


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## Butters (Apr 20, 2012)

Pluto said:


> 6. SheaButters: If I read your kink correctly US 10 year expected return = .7% and Canada 2.7% I have more faith in this chart than I do in the dreams of the euphoric.


0.7% was just for 1 quarter

But yeah you gotta trust the CAPE, and due to the high p/e's... the rate of return is low... if the p/e's get higher, the volatility will increase on that chart, and that's when we can expect to see a correction... but I don't think we will see a full out 40%+ crash anytime soon... unless of course the markets go up 30% again this year, and even at that points, its more or less a wash

but anyways, US returns will not be great... .7% x 4 = 2.8% yearly + another 3% dividends?
likewise, Canada might be a bit higher, but we also have more risk.

Will be sideways markets for awhile... up 3% one month, down 3% next


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## GoldStone (Mar 6, 2011)

Pluto said:


> 3. Godstone. When defensive sectors move up like that suddenly, some market movers (institutions) are showing concern about the appreciation potential of stuff they sold, and move into defensives stocks.. When market movers show such signs, I get cautious, not complacent.


Move up suddenly? Take a look at the chart. It's not a sudden move.









Utilities have been outperforming since Jan 1. This is a sign of caution, not an euphoria. 

Another possible explanation is plain old value. Remember taper tantrum last year? Everyone dumped utilities and REITs expecting the rates to go up. I keep an eye on S&P 500 Pure Value Index. It picks 33% cheapest stocks out of S&P 500 based on three value factors: p/e, p/b and p/s. It had a heavy allocation to utilities at the start of the year.


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## Pluto (Sep 12, 2013)

GoldStone said:


> Move up suddenly? Take a look at the chart. It's not a sudden move.
> 
> View attachment 2473
> 
> ...


Suit yourself. A rising tide lifts all boats, as some say. The opposite is they all go down when the tide goes out. Out of the cheapest stocks in the S&P now, what was their price in 2009? Just because they are the cheapest now relative to the most expensive, doesn't mean they are good value. And it doesn't mean they can buck a serious downtrend.


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## amitdi (May 31, 2012)

Before 1999, no one knew Nortel would fail
Before 2007, no one knew Potash would fall

If people knew it was euphoria, then they wouldnt have gone gung-ho. Similarly now, no one knows whats next. Whats justified today may become tomorrow's euphoria (Its only euphoria after the fact).

What we are doing is shooting in the dark. But of course we all can guess - and my guess is social media. FB, LinkedIn, et al are all going to bring us down.


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## Just a Guy (Mar 27, 2012)

I'm not sure that's true, I remember having lunch with a friend of mine and we were discussing Nortel just before the fall...we were talking about how they sold their product, then financed it through a different arm, then both groups claiming a profit on something Nortel basically sold to itself...

We didn't think that was a sound business plan, and were thinking that Nortel was setting itself up for failure.


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## Pluto (Sep 12, 2013)

amitdi said:


> Before 1999, no one knew Nortel would fail
> Before 2007, no one knew Potash would fall
> 
> If people knew it was euphoria, then they wouldnt have gone gung-ho. Similarly now, no one knows whats next. Whats justified today may become tomorrow's euphoria (Its only euphoria after the fact).
> ...


I'm trying to pinpoint your underlying premise: I think but not sure, it is this: If we can't know one thing, we can't know anything. If that's your premise, I don't buy it. Its an over generalization. 

When one notices that in a time of intense pessimism stocks in general are low, and years later after significant gains in stocks people are optimistic with pockets of euphoria, and this pattern repeats itself over and over with every bull and bear market, it isn't 100% a shot in the dark. I don't buy that you don't know the difference between despair and optimism, depression and mania. 

Also, with Nortel and Potash, for example, if one can notice the up trend, one can notice and identify the down trend. Trends are something that can be known. If one thinks about how far Nortel or potash had to come down before one noticed the up trend is no lounger there, it isn't the bottom - that is, you can see it before the bottom. And people who ride them all the way down, should be able to recall their feelings. Mania, and euphoria around the top. Then it pulls back: Euphoria gets challenged and turns to denial and hope. Usually around this time many check the fundamentals and the estimates for confirmation of denial. Everything checks out because the fundamentals are always rosy at the top. The false premise is earnings precede price. but it ain't so. Price precedes earnings. That's why many people are so stunned when the plunge arrives. Then denial and hope are crushed. 
Since price precedes earnings, some of the best clues to the future are in price and volume. 
Focus on what you can know, not on what you can't know. so what do we know? some of what we know is:
1.This isn't a time of pessimism or despair, or depression. that was a long time ago - 2009 10, a really really good time to buy. 
2. A long time after a really really good time to buy is usually a good time to consider being cautions, in lieu of allowing over optimism and euphoria take hold of ones mind. 
3. Since prices precede earnings, don't let the earnings fool you into thinking everything is hunky dory. Stock prices head down, before proof and confirmation of the downtrend from earnings reports. 
4. The folks who can move prices one way or the other are those with billions under management. They are the only ones who can create very high volume. You want to be set up to go in the direction they are going. 
In the recent pullback, compared to the rebound, the volume was higher on the pullback. That's a clue (but not proof) that some of the big boys are getting cautious. The accumulation of clues in a specific direction is what can give you the edge. If they get cautious, I get cautious. I can't buck them. if they are going to resume high volume selling at lower prices, my denial and hope won't stop them from destroying my paper profits. 

I'm trying to tell you, don't get mesmerized by what you can't know and then leave your fate to someone else. focus on what you can know and tilt your strategy in the direction the clues are telling you. Try to gain some independence from gurus by developed your own skills. 

You don't need a weatherman to know which way the wind blows.


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## GOB (Feb 15, 2011)

amitdi said:


> Before 1999, no one knew Nortel would fail
> Before 2007, no one knew Potash would fall
> 
> If people knew it was euphoria, then they wouldnt have gone gung-ho. Similarly now, no one knows whats next. Whats justified today may become tomorrow's euphoria (Its only euphoria after the fact).
> ...


There were plenty of people who knew Nortel was not a good investment. Don't think the opinion of the majority is the opinion of all. 

Nortel had a P/E of over 100 before the crash. In my opinion, anyone with a brain would've known that was a cause for concern. If my favourite stocks had that kind of multiple you can be sure I wouldn't be invested in them. Many people love it, but I'm pretty sure Amazon is eventually going to tank, because it's obviously way overvalued as the business can't turn a profit after 20 years. You may be right about social media - most of those companies are overvalued and there is only so much advertising money available. But there are plenty of companies that are insanely profitable and have reasonable or even very attractive valuations.


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## OptsyEagle (Nov 29, 2009)

Boy I sure wish I was as smart as all you guys with all these "obvious" signs. Funny how all those highly educated investors missed them back then. especially when you guys have this game all wrapped up...in hindsight.

We need to get together 20 years from now. I bet you're considerably more humbled ... or you will be the 0.001% of investors that are way too rich to talk to the likes of me. From reading your posts, I doubt that but only time will tell. Good luck.


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## Just a Guy (Mar 27, 2012)

I never bought Nortel, don't have Facebook or Amazon either...I don't jump on bandwagons as an investment strategy. 

While I do own apple, I wouldn't buy more at these prices either.


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## Eclectic12 (Oct 20, 2010)

amitdi said:


> Before 1999, no one knew Nortel would fail


True ... but then again, from watching other stocks - I figured there would be a bounce before a final failure.
Of course it helped that other than index shares, I only had a few from the BCE spin-off so buying enough to get me in the black didn't require a ton of cash.




amitdi said:


> Before 2007, no one knew Potash would fall


Sure ... but at the same time, having seen it run-up from $28 to $110 then slide quickly while a lot of other stocks were dropping, it seemed clear that selling a sizeable chunk and seeing what happens could be a good idea.




amitdi said:


> ... If people knew it was euphoria, then they wouldnt have gone gung-ho.


Some of those around me had lots of info to tell them it was suspect and yet chose to go in with sizeable money as they "knew" tech stocks.
One that I remember gave up on DIY in six months are he was losing money as he'd focused only on tech stocks where my tech stocks that were
down were counterbalanced by things like MFC or buying TDW for less than the buyout price or buying TransCanada when it started looking like management's turn around steps were working.




amitdi said:


> ... Similarly now, no one knows whats next.
> Whats justified today may become tomorrow's euphoria (Its only euphoria after the fact)...


What is the justification based on?

I can recall many articles questioning the sky high valuations on Nortel, JDS Uniphase and many others that dropped dramatically.
Depending on twenty years of stellar growth to support *today's* price IMO isn't a good plan for significant chunks of money.




amitdi said:


> ... What we are doing is shooting in the dark. But of course we all can guess ...


Or we can pay attention, see similar signs to past stocks that crashed and deal with it.


Cheers

*PS*

It also helps to look for what's out of favour when looking for where to put money ... putting money into utilities when Nortel was the "best thing" worked well.


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## GOB (Feb 15, 2011)

OptsyEagle said:


> Boy I sure wish I was as smart as all you guys with all these "obvious" signs. Funny how all those highly educated investors missed them back then. especially when you guys have this game all wrapped up...in hindsight.
> 
> We need to get together 20 years from now. I bet you're considerably more humbled ... or you will be the 0.001% of investors that are way too rich to talk to the likes of me. From reading your posts, I doubt that but only time will tell. Good luck.


Oh please...there are ways to tell when a stock is obviously overvalued, and an insane P/E for anything but a small startup with massive growth potential is one of them. I'm not saying all my picks are winners - far from it. But I would never have invested in something like Nortel, just like I won't touch Amazon with a 10 foot pole, because its a bomb waiting to go off. 

Highly educated or professional means very little in this field. I know Apple better than the majority of analysts covering it, and I'm perfectly comfortable going with my own opinions instead of theirs. I also trust my more conservative valuation metrics against many professionals who seem to bank on endless future potential and momentum. Though it can certainly pay off, it's far more risky in my opinion.


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## LBCfan (Jan 13, 2011)

Eclectic12 said:


> Sure ... but at the same time, having seen it run-up from $28 to $110 then slide quickly while a lot of other stocks were dropping, it seemed clear that selling a sizeable chunk and seeing what happens could be a good idea.


I think POT topped at about C$242, I sold some above $230. Did the slide really start at $110?


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## sags (May 15, 2010)

Even if people knew the stock markets were going to crash this week.........how many people would pull all their money tomorrow ?


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## Butters (Apr 20, 2012)

sags said:


> Even if people knew the stock markets were going to crash this week.........how many people would pull all their money tomorrow ?


Everyone would, if it was a sure thing

But if you said there was a 80% chance it would crash next week, then how many would pull out? 40%?


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## Just a Guy (Mar 27, 2012)

If everyone pulled out of the market, I can guarantee 100% that it would crash.


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## Janus (Oct 23, 2013)

Whether or not the market's in a state of euphoria is a good question. Frankly to me it seems to be localized in certain areas. U.S. small caps, tech, biotech. There is definitely euphoria there, and the valuations to prove it.

But in terms of the market as a whole, I just don't get the sense that things are euphoric. Are people talking about the stock market at cocktail parties? Are layman speculators getting rich left and right? Are high finance people rolling in massive bonuses? All no.


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## carverman (Nov 8, 2010)

Just a Guy said:


> I'm not sure that's true, I remember having lunch with a friend of mine and we were discussing Nortel just before the fall...we were talking about how they sold their product, then financed it through a different arm, then both groups claiming a profit on something Nortel basically sold to itself...
> 
> We didn't think that was a sound business plan, and were thinking that Nortel was setting itself up for failure.


That and more...I was there during the transitional years...from a solid blue chip stock partly owned by Bell Canada, to the divestiture and a "free for all" lines of business expansion and growth to....THE RIGHT ANGLE TURN..the "drunken" buying spree of the dotcoms... to the final gasps after making their profits seem larger than they actually were, to satisfy the shareholders...perhaps somebody with some more knowledge of what went on, should write a book..
titled "Too Big to Fail"....I would gladly buy a copy.

From Wiki:


> At its height, Nortel accounted for more than a third of the total valuation of all the companies listed on the Toronto Stock Exchange (TSX), employing 94,500 worldwide, with 25,900 in Canada alone.[31]
> Nortel's market capitalization fell from C$398 billion in September 2000 to less than C$5 billion in August 2002, as Nortel's stock price plunged from C$124 to C$0.47. When Nortel's stock crashed, it took with it a wide swath of Canadian investors and pension funds and left 60,000 Nortel employees unemployed. Roth was criticized after it was revealed that he cashed in his own stock options for a personal gain of C$135 million in 2000 alone.[32]


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## Eclectic12 (Oct 20, 2010)

LBCfan said:


> I think POT topped at about C$242, I sold some above $230. Did the slide really start at $110?


Maybe .... I was thinking Potash referred to the product not the company.

With Agrium's diversification, I owned AGU instead of POT.


Cheers

*PS*

AFAICT, the extremes were AGU from something like a high of $144 to $30 while POT was a high of $239 to a low of $71.


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## Eclectic12 (Oct 20, 2010)

carverman said:


> ... I was there during the transitional years...from a solid blue chip stock partly owned by Bell Canada,
> ...perhaps somebody with some more knowledge of what went on, should write a book..
> ....I would gladly buy a copy.


You mean like:
http://www.obj.ca/Local/2014-01-23/...rds-of-risk-taking-in-new-book-about-Nortel/1


Cheers


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## amitdi (May 31, 2012)

The general idea from the replies on my post was that many people knew (or had strong idea) that these events would happen and had talked about it. I give you that, I am not denying the fact that you may have known.

But you may have also talked about 10 other stocks, and things like world would end in 2012. Today, we are only discussing Nortel. Why? Because it happened.
Why are we not talking about how the world ended in 2012? Because it did not happen.

If you track this thread, I can list about 10-12 things that are currently euphoria. In 2019, only one of them will be discussed, we will forget about the other. and I will remember talking about that *one* thing in CMF.

I think having a general idea that markets are overheated is a good edge. But not knowing what sector will bring it down is ok. I dont think anyone (even experts) can do that.


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## londoncalling (Sep 17, 2011)

Y2K? lol :cower:


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## LBCfan (Jan 13, 2011)

Eclectic12 said:


> Maybe .... I was thinking Potash referred to the product not the company.
> 
> With Agrium's diversification, I owned AGU instead of POT.
> 
> ...


Well, I'm not about to argue about the stock prices (although I think yours may be in US$). I will suggest that the product never got as low as $110, much less $28. The ten year low will between $200 and $300.

BTW, what diversification does AGU offer? AGU is a Nitrogen company with a tiny KCL side PLUS a big retail arm. Beyond the retail, AGU is a Nitrogen fertilizer company.


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## Eclectic12 (Oct 20, 2010)

LBCfan said:


> Well, I'm not about to argue about the stock prices (although I think yours may be in US$).


I used Yahoo's historical prices for the TSX listed stocks so it should be CAD ... certainly picking a few month end prices and comparing against my CAD brokerage monthly report, the closing number is bang on for what Yahoo is listing.




LBCfan said:


> ... I will suggest that the product never got as low as $110, much less $28. The ten year low will between $200 and $300.


Probably ... unfortunately, I seem to have substituted one confusion for another. I probably should have wrote something more along the lines that I was thinking of the stocks in that space, as opposed to the product.




LBCfan said:


> ... BTW, what diversification does AGU offer?
> AGU is a Nitrogen company with a tiny KCL side PLUS a big retail arm. Beyond the retail, AGU is a Nitrogen fertilizer company.


At the time, they had Potash mining plus a retail arm plus the nitrogen plus a bigger dividend.
It seemed like they were in a similar space without being as exclusively tied to one product.

It was also easier to end up with round numbers for under $30 than around $100.


Cheers


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## Pluto (Sep 12, 2013)

Janus said:


> Whether or not the market's in a state of euphoria is a good question. Frankly to me it seems to be localized in certain areas. U.S. small caps, tech, biotech. There is definitely euphoria there, and the valuations to prove it.
> 
> But in terms of the market as a whole, I just don't get the sense that things are euphoric. Are people talking about the stock market at cocktail parties? Are layman speculators getting rich left and right? Are high finance people rolling in massive bonuses? All no.


Good points. Presently the mania is no where near where it was in 1999-2000, for example. Then I think to fall 2007 - mania was mostly in oil at 140 with some wall street predictions of it going to 200 soon, and Potash prices that seemed to have no top. But the mania then was nowhere near like 2000. So I'm wondering if present times are different from the 2007 peak in terms of euphoria? Maybe not there yet, but in 2007, I don't recall many lay people talking of getting rich, or even being interested in stocks. One thing I recall from 87 compared to now is the claim that stocks are the only place to invest - all other options are kaput. I heard that all year. People said it with such confidence and the confidence was contagious. But even then aug 1987 was nowhere near the mania of 2000. 

The thing that is different this time, so far, is no interest rate rises yet.


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## etfstrader (Sep 26, 2014)

Is the stock market in a state of Euphoria right now? Well, it depends on what time frame you are looking at. If you are looking at it in long term prospects, we are still in a bull cycle because economies are still picking up where there isn't any inverted yield curve and JOBS aren't disappearing at an alarming rate. Even though US fed already stopped its QE's program, it's investing back its principle of equivalent to $5 billion to the stock market every month. So, we won't see market going to crash soon like the one in year 2008.

Otherwise, if you concern about short-term time frame, now is not the time to be greedy as short-term market is entering into a high risk environment which it might go through short-term correction at any moment. I'd rather wait until it drops before going in to buy into the dip or taking advantage of Santa Claus rally?


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## Pluto (Sep 12, 2013)

I like your reference to the yield curve. but I'm not happy with your reference to jobs: If one wants to sell stock at a good price, and one waits until alarming job losses, its too late. Jobs only works in a contrary way. Low unemployment = roughly time to sell stock; high unemployment roughly time to buy stock. 

But getting back to the yield curve, in Canada it was almost flat 2 years ago, and there is usually a 2 year lag. I don't know how much weight to put on that however, since we more or less track US. 

As to euphoria, my point was we do not need 1929, and 2000 levels of euphoria to top out. 1987, and 2007 was no where near the level of euphoria as the other two instances. 

Ultimately, the best thing (for me) is to watch the leaders - when they sag I reassess the situation. for instance GMCR, and AAPL. when they lose steam, I'm going to ask, is that it for this bull market? to answer that question, I'm going to want to see some new leadership, and some convincing high volume buying among other things, such as a recovery in the Advancers vs declining stocks. Bull markets don't seem to last while the AD line is trending down.


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## etfstrader (Sep 26, 2014)

Pluto said:


> I like your reference to the yield curve. but I'm not happy with your reference to jobs: If one wants to sell stock at a good price, and one waits until alarming job losses, its too late. Jobs only works in a contrary way. Low unemployment = roughly time to sell stock; high unemployment roughly time to buy stock.
> 
> But getting back to the yield curve, in Canada it was almost flat 2 years ago, and there is usually a 2 year lag. I don't know how much weight to put on that however, since we more or less track US.
> 
> ...


There are 2-type of jobs data that I track. One is MONTHLY US unemployment data which is a lagging indicator and it's the one that I guess you are talking about. Another one is US WEEKLY jobless claim data and this one is a leading indicator which shows that it always go up before market going into recessions like the one in mid 2000 and 2008. You won't find this leading indicator useful when you apply it to short-term market fluctuations, but you'll find how amazing it's to help you to identify a bull or bear market in a long-term outlook. Of course, you can't rely only on one indicator to tell where the market is heading, but this one particular indicator is a very important one that every investor/trader should keep track of.

I don't analyze and keep track of Canadian market since it does not have strong influence on global stage and it is heavily focused on energy/material related sector. US market is the one that all I care about.


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## Pluto (Sep 12, 2013)

etfstrader said:


> There are 2-type of jobs data that I track. One is MONTHLY US unemployment data which is a lagging indicator and it's the one that I guess you are talking about. Another one is US WEEKLY jobless claim data and this one is a leading indicator which shows that it always go up before market going into recessions like the one in mid 2000 and 2008. You won't find this leading indicator useful when you apply it to short-term market fluctuations, but you'll find how amazing it's to help you to identify a bull or bear market in a long-term outlook. Of course, you can't rely only on one indicator to tell where the market is heading, but this one particular indicator is a very important one that every investor/trader should keep track of.
> 
> I don't analyze and keep track of Canadian market since it does not have strong influence on global stage and it is heavily focused on energy/material related sector. US market is the one that all I care about.


Thanks for the info. I believe that jobless claims is a leading economic indicator, but how well does it work as a stock market indicator? I find that the stock market turns down well in advance of confirmation of a recession. 
http://www.tradingeconomics.com/united-states/jobless-claims

According to the graph linked above, in 87 it wouldn't help with stocks as jobless claims was in a steep decline right through the 87 bear market, in 2000 I think the stock market was in steep decline before jobless claims turned up, and in 2007-8, Jan 08 did see a rise in jobless claims prior to much damage being done to the stock market. However, it seems to maybe be useful as a contrary inductor for stocks. so I'll keep an eye on it. thanks.


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## lonewolf (Jun 12, 2012)

Euphoria is Euphoria when people are Euphoric it will show up in their actions. Mans mind is so constructed his emotions lead to actions, The actions of the masses is in direct relationship to the mood of the masses.

Lonewolf Newton


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## Nemo2 (Mar 1, 2012)

lonewolf said:


> Euphoria is Euphoria when people are Euphoric it will show up in their actions.


_"A proof is a proof. What kind of a proof? It's a proof. A proof is a proof. And when you have a good proof, it's because it's proven."_

Jean Chretien


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## lonewolf (Jun 12, 2012)

In one day alone Nove 17 2014 corporate mergers announcements over 100 billion dollars. A little bit of euphoria don't ya think ?????


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## lonewolf (Jun 12, 2012)

As far back as cave man days man learned if a rock was thrown @ his head to duck. An object in motion tended to stay in motion. The stock market trend has been up since 2009. Yesterdays sentiment readings of IIA the bullish percentage (bull divided by bulls + bears) reached 79.1% just below the 27yr extreme of 80.9%

Complacency perhaps more then euphoria is in place for the trend to continue. Investing is a little more complex then Newtons law that the schools might teach & needs to be taken one step further & that is to cycles.

Why would anyone invest in something with the word "junk" ? Anyway the spread between junk bonds & treasuries reached it narrowest spread ever earlier this year & has now started to widen. I think a narrow spread is indicative of risk on. I started a thread a few weeks back regarding a 2007 analog regarding price pattern in stock market, The spread between junk bonds & treasuries is also following that analog. Also of interest is the smaller jaws of death pattern that is forming with in the over decade long jaws of death pattern.


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## RBull (Jan 20, 2013)

Nemo2 said:


> _"A proof is a proof. What kind of a proof? It's a proof. A proof is a proof. And when you have a good proof, it's because it's proven."_
> 
> Jean Chretien


LOL. Thanks for reviving that classic and giving me a chuckle.


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## Pluto (Sep 12, 2013)

1. Jobless claims lowest since 2000. Jobless claims are always low at major market tops. (markets bottom around the time jobless claims are quite high.) This good economic news is feeding into optimism. I think we know what happened in 2000.
2. The % bears recently was the lowest since Feb 1987, according to a Business Insider article. Almost no bears means extreme optimism. I think we know what happened between Aug 1987, and Oct 87. 

And speaking of 1987, I was reading "Stocks for the Long Run" by Siegel who claimed that in the summer of 87, an economist gave a speech talking about how wonderful the economy was, and how it would grow 4% in 88, and how there definitely would be no recession for 2, maybe 3 years. Encouraged, money managers encouraged their clients to buy stocks. However, from the time of the speech, to the following October, stocks fell 40%. And in 88, there was no recession, and the economy grew by about 4%. 

Siegel ended the chapter by saying, "The worst course an investor can take is to follow the prevailing sentiment about economic activity. That will lead investors to buy at high prices when times are good and everyone is optimistic and sell at the low."

Of course, some people will think I am a bear, and that I have sold all my stocks, that I will get sideswiped, yada, yada, yada. However, this is a bull market, and I'm a bull, I own stocks that are going up. The trend is your Friend. I plan to keep what's going up, until it doesn't go up any more. Then I plan to sell and reassess the situation. It's crazy to sell when they are going up. But it is just as crazy (for me) to hang on to them after they sag, after they are no longer pushing into new highs, while business sentiment is, in a contrary way, clearly showing a top is forming. 

You will never hear the majority of pro money managers say "sell" when a top is forming. When you are in a crowded movie theater and you notice a fire, don't yell, "Fire", rather, quietly tell the usher. That's something like what Zweig did in 87: He didn't yell "Sell", he just said he was worried, and tilted his strategy negative. Apparently, he was in the minority, and made money during the bear market. 

I have long suspected that many people do not want to know when a top is forming; they don't want to believe it. They want it to go on forever, so they can make money. But wishing, won't make it happen. One is better off, I think, learning how to spot forming tops, but stay with the trend until it ends. Then employ a strategy to make money in a down trend. 

Be your own guru. You don't need a weatherman to know which way the wind blows.


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## supperfly17 (Apr 18, 2012)

lonewolf said:


> In one day alone Nove 17 2014 corporate mergers announcements over 100 billion dollars. A little bit of euphoria don't ya think ?????


One day my friend, one day you will be hailed as the hero who predicted the big crash.


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## lonewolf (Jun 12, 2012)

Supperfly I m tired & weary, I have plans to put on a core long position in the precious metals & precious metal stock most likely around 2016/2017 I think we just completed the 1st 5er down from the all time high in gold to the lowest point since the all time high in gold, @ the bottom of the next 5er down after the abc rally that corrects the first 5er down from the all time highs will be the time to go long the metals. This could be the life changing play the gold bugs have been looking for. For the stock indexes have to trade small on the short side with far out of the money leaps when the DNA markers indicate a high potential for a move to the down side.


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## sags (May 15, 2010)

What a friend we have in Yellen..........what a friend we have in her,

What a friend we have in Yellen..........she has our back and that's for sure.

We invest and really make some money.......we know that we cannot lose,

What a friend we have in Yellen..........a better friend we could not choose.


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## Pluto (Sep 12, 2013)

Article: don't get carried away by rising stocks. 


http://www.marketwatch.com/story/dont-get-carried-away-by-rising-stocks-2014-11-21

An article on rising optimism and euphoria, the polar opposite of the shock, pessimism, despair, depression of 2009. 
Mood indicators are approximations of bottoms and tops. What famous investor said something like, "I'd rather be approximately right than perfectly wrong."? 

My posts here are not for investors who are happy with their current strategy. These posts are for people who are unhappy with their results and seeking answers. Even though optimism is approximately indicating a top, if your stocks are going up, keep them until they no longer go up. If you have stocks that are not going up with the market, consider cutting back on those ones. 
Individual investors don't have to run their personal accounts the same way that multi billion $ funds are forced to. They take weeks or longer to acquire a position, but individuals can do it is less than a minute. Same on the sell side. 

What a friend we have in Yellen...Hmmmm. Wait until the fed sees wage inflation. I think we'll find she could care less about our back.


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## HaroldCrump (Jun 10, 2009)

Pluto said:


> Wait until the fed sees wage inflation.


Tick tock...Tick tock...Tick tock...


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## GOB (Feb 15, 2011)

I'm keeping my core positions because they are pretty much all dividend growth companies. Income stream should keep flowing and growing even if the market turns. Most of my oil positions were bought at least 20% from the highs anyway. I agree a good degree of caution is warranted at this point, so I've been accumulating cash and not putting any more into investments.


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## HaroldCrump (Jun 10, 2009)

The rally from this morning is fast fizzling out.
DOW was up 150 at the open, now only 83.

I am not sure why all the talking heads were so excited by the PBOC's rate cut.
This is a coordinated, synchornized move between the major central banks.
The Fed is taking a breather, and allowing the BOJ, ECB, and PBOC to take their turn doing Q/E.

Q/E is a global phenomenon because all markets and currencies are linked.


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## Pluto (Sep 12, 2013)

Harold, I'm wondering about China's rate cut. They are supposed to be growing about 7%. So why the heck do they think they need a rate cut? It seems possible they are in a lot of trouble they are not talking about - (possibly trying to prevent a pending crash in (empty) home values). Or are they just tying to help out other countries out of the goodness of their heart? However I slice and dice it, it doesn't add up. Perhaps you could shed some light on this?


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## Pluto (Sep 12, 2013)

Cramer finds it difficult to be skeptical of the market. Warning to the skeptics:

http://www.cnbc.com/id/102197509


Lets put this in perspective: 

2009: pessimism, despair, depression, 
2010 - 2013: climb the wall of worry, skeptical.
2014: worry is over, can't be skeptical. Clearly optimism has set in. Obvious pockets of euphoria. 

Don't get me wrong, I like Cramer, which is different than saying I automatically believe everything he says, but when it is difficult to be skeptical, that mean's the wall of worry stage has ended, and investors start rationalizing bad moves. His stating that it is difficult to be skeptical helps to confirm we are in a maturing bull market, and we have shifted to the optimism-and possibly euphoria stage. 

Does this mean I think people should sell all? Nope. Sell what isn't going up. Keep stocks that are going up until they no longer go up, then sell. Look for more on your watch list of favorite stocks that are commencing up trends, then buy those; when the up trend ends, sell. If there are none on your watch list commencing an up trend, maybe you need to get a new list, or maybe or maybe there are none is up trends. Following this strategy, you own't get caught in a bear market, and you will be making money right to the peak. 

I realize such a strategy isn't for everyone. It's only for people who want to preserve capital and have cash at hand when the next great buying opportunity arrives.


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## GOB (Feb 15, 2011)

It's hard to tell when an uptrend has truly ended until well into the downtrend. Look at the little correction we had in October - might have been a good time to call the trend over and start selling, but we're right back at all time highs. Timing the market is easy in principle, very different in practice.


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## lightcycle (Mar 24, 2012)

GOB said:


> It's hard to tell when an uptrend has truly ended until well into the downtrend.


This is it exactly. All this talk about pessimism, despair, optimism and euphoria are all qualitative measurements and are relative to where you were a minute, a month or a year ago.

To be ultimately useful, you need to be quantitative, have solid metrics that are predictive and reproduceable, otherwise all the the "buy when everyone is pessimistic and sell when everyone is euphoric" talk amounts to little more than a rephrasing of the oft-quoted axiom: "buy low, sell high".


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## Pluto (Sep 12, 2013)

This is only for people who are interesting in mastering the psychological dimension of market indicators. I'm not trying to talk people out of any strategy that conflicts with this one. 
Lightcycle: There has been quantitative items mentioned in previous posts above. EG, % bears lowest since Feg 87. % Bulls at extreme highs earlier this year. Plus US Jobless claims down to a level that has previously approximated a market top. The psychological indicators typically correlate with such numbers. There has been no pervasive pessimism or despair since 2008-9, so if you see it in the last minute, month or year, you are seeing something that isn't there. Some examples: In 1999 % bulls was 60%+ giving an early warning to the 2000 peak. In contrast, in Oct 2008 %bulls was about 20%. With some experience one does not need the actual numbers to effectively gage market sentiment. 

Once one adopts a specific strategy, it is not difficult to be out of a topping market before serious damage is done to ones account. Take aapl for example. It's in a very steep rise right now while the price catches up to the perceived fundamentals. So to be really conservative in terms of preserving gains, if it breaks below a trend line connecting the bottom at Oct 16 with the bottom at Nov 11, sell some or all. That choice, to be really conservative, is a personal choice. 

If one does not want to be that conservative, look at the real estate between aapl's price, and its 50 day ma. Right now the % above its 50 day ma is huge. that gap will close at some point. When the price touches the 50 day ma watch closely: if it falls below sell. If it bounces upward off the 50 day, hang on until it eventually falls below. 

so there is two choices, among other choices, that helps one preserve capital. 

And speaking of aapl, in spite of the fact it is a great company, if one bought it in the fall of 2012, it is not a good use of ones investing money. Waiting 2 years to break even is not my cup of tea. And that's precisely what I want to avoid in the future: Right now I don't want to hold any stock that is consolidating. What I plan to do is sell half when the aforementioned trend line is broken, then sell the other half when the price falls below the 50 day ma. 

Then what? If there is another stock on my radar that is breaking out after a consolidation, I'll buy it. And when its up trend is broken, I'll sell it too. Using this strategy, when the bear arrives, I'll be in cash. And I'll just sit tight while many others get creamed. 

This Euphoria thread is about how to make money in a mature bull market, and how to keep the money. Too, it is a plan to have buying power when the next time of pessimism really arrives. 

I'm fascinated by DIY investors who totally ignore and/or promote cynicism about the strategies of the the best investors ever. Cynicism about Buffett, for example. It's too difficult people say. We don't have a big office with staff, we don't have access to CEO's and what not. Get a grip. Buy when others are fearful, be fearful when others are greedy. You don't need a office full of smart staff to do that. Cynicism about Templeton: bull markets are born out of extreme pessimism, rise in skepticism (climb a wall of worry), Mature in optimism (right now, when people find it hard to be skeptical), and end in euphoria. Right now, in the shift from optimism to euphoria, is the greedy stage Buffett talks about. 

In a maturing bear market buy on the down spikes, in a maturing bull market sell the high fliers into rallies. 

There is a lot of money to be made in this stage - the shift into euphoria - just make sure to sell your tulip bulbs to the greedy. 

Again, this is only one strategy among many. I'm not trying to tell people what to do with their money. I'm describing a strategy for those who are interested in alternatives. 

It's pretty clear to me that GOB is successful with his fundamental analysis approach, and if it an't broke, don't fix it. But lightcycle, I get the feeling you don't have any strategy at all.


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## lightcycle (Mar 24, 2012)

Pluto said:


> Lightcycle: There has been quantitative items mentioned in previous posts above. EG, % bears lowest since Feg 87. % Bulls at extreme highs earlier this year. Plus US Jobless claims down to a level that has previously approximated a market top. The psychological indicators typically correlate with such numbers. There has been no pervasive pessimism or despair since 2008-9, so if you see it in the last minute, month or year, you are seeing something that isn't there. Some examples: In 1999 % bulls was 60%+ giving an early warning to the 2000 peak. In contrast, in Oct 2008 %bulls was about 20%. With some experience one does not need the actual numbers to effectively gage market sentiment.


Ok, put your money where your mouth is. Call a top.

It's not that hard, lonewolf's been doing it for two years now.


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## Pluto (Sep 12, 2013)

Nice try, lightcycle. As previously posted, I don't make predictions. I calculate the odds, and go with the odds that I think are in my favour. How I do that is described already, and I end up in cash near tops. I'll write the essence again. But before I do that I'll mention that you wanted something quantifiable, and I gave you that. You didn't respond to that quantification. 

The essence of the strategy is,
1. hold cash unless a stock breaks out to new highs. If one breaks out, buy that one. Hold until it tops out, then sell it. 
2. If upon buying a break out, it fails, sell it. 

By following the above strategy, it's obvious that when the bear market arrives, I'll be in cash. And I won't have to predict - I'll be in cash automatically. This is the so called momentum strategy. 

When the bear market arrives, I won't use the momentum strategy for the duration of the bear. In stead, I'll switch to a value approach. I will hear the words of Templeton, Buffett and Munger in my head: be greedy when others are fearful, buy at the time of maximum pessimism. In this case I buy very conservative dividend paying companies with plans to hold them until we get to the next extreme optimism stage. Then I sell them. In the meantime when the bull market arrives, I also do momentum trades until there are no more breakouts. 

So, lightcycle, learn to buy value in the depths of a bear market, sell them when extreme optimism arrives. 
learn to identify the beginning of bull markets, and do some momentum trades. You will make money and be less cynical. And you will never get caught in a bear market. Plus, you will never have to call a top in advance.


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## Just a Guy (Mar 27, 2012)

Personally, I'm a buy and hold investor...I buy when there are disasters and I don't sell. I don't follow the stocks, rarely look at my holdings and look for companies once in a while that a) I understand and B) people talk about being good...then, at the next crisis, I pick them up.

Now, I know this doesn't maximize my earning potential, but I wonder if I'd do much better considering the tax implications of timing the market. For example, in 2007/8 during the U.S. financial meltdown, I picked up BMO for $28 (it payed $2.80 as a dividend at the time). I got a 10% return on my investment (which has since grown, but I'm not sure to what). I believe the stock has tripled in value as well (more or less). If I were to sell the stock, the government would take a fair chunk of my earnings through capital gains (somewhere around 25%). 

By selling I'd have 25% less money invested in the market. While I may earn a higher return somewhere else, I'm starting with 25% less...would I really be better off?

By not cashing out, I defer my tax hit and have more cash in the market...of course BMO could drop, but long term, I think it's more stable than say blackberry. The banks also have a long history of recovery...

I know many talking heads say buy and hold is stupid and doesn't work anymore in the modern economy...but I've done quite nicely with it personally, and I get pretty good tax deferment to boot...


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## lonewolf (Jun 12, 2012)

Tax deferment might not workout as well as a lot of people think. There is no way the government is going o make good on all its promises & the trend could increase even further to the unproductive dependents feeling entitled to the productive prudent workers harvest. Result being your money will most likely be taxed to death.


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## Just a Guy (Mar 27, 2012)

Well, there are ways to take money out tax free as well...especially capital gains if you can control your income. I'm no accountant, but if the account is joint, and you have no other income, you could probably take out nearly $100k/ year virtually tax free...

Income split it to $50k each, 50% of that is tax free, leaving you a $25k income each (basically below the taxable income levels) so you pay a minimum.


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## HaroldCrump (Jun 10, 2009)

Pluto said:


> Harold, I'm wondering about China's rate cut. They are supposed to be growing about 7%.


They are not growing at 7%.
*There are serious concerns and doubts about the accuracy of official Chinese data.*

There are varying estimates of real rate of growth.
I have seen numbers around 5% - 7%, and as low as 4%.

Even if we pick say 5% as the nominal rate of growth, a significant portion of Chinese GDP comes from "wasted" growth, such as massive state-sponsored infrastructure projects in the interior.
The so-called "ghost" cities with apartment buildings, train stations, malls, office buildings, etc.

China is also understating its true inflation, esp. in food and real-estate.
Once you use an appropriate cost of living deflator, the real growth is less.

Also, keep in mind that China is the second highest military spender in the world.
While that adds to GDP, all that spending is essentially a "waste".



> So why the heck do they think they need a rate cut? It seems possible they are in a lot of trouble they are not talking about - (possibly trying to prevent a pending crash in (empty) home values).


Yes, among other things.
They need a rate cut to keep the shadow banking system afloat.
China has been brewing its own "Made in China" version of the subprime real estate crisis, in the form of the real-estate backed wealth management products.

*That market is becoming unstable now.*

They need the official discount rates to be low in order to keep that bubble going.
China should be _increase_ interest rates, not _decrease_.
However, doing so might pop the R/E bubble in a hurry.
As soon as that happens, many of the WMPs will default on their payments.
That will bring down the shadow banking system.

Sound familiar, eh?

China will not make the same mistake as the US did back in 2006 of raising rates...

The other reason they are cutting rates is to cheapen their currency.
The USD has strengthened significantly in the last 4 months - China does not want to appreciate their currency in line with the peg.
They want to cheapen in further.

Also, China's trade with the EU has been falling due to the recession (actually, depression) in the EU.
The rate cut is expected to boost its exports to the EU.

All in all, their move is perfectly logical and understandable (from their perspective).


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## Pluto (Sep 12, 2013)

Justaguy:

I can't definitively answer the tax question. I certainly think it is good to hold for a s long as possible during a bull market. When the Bull market is winding up, I'm not sure it is a good idea to hold on for tax purposes. for example, 

supposing you bought BMO during the 2002 bear market at 23. then in 2008 you sold it for 60. (It topped out at 71 but who sells at the exact top?) So you have a gain of 37. Half is taxable at your marginal rate. You say this would be 25% of the total leaving you with 27.75 gain plus your original stake of 23, for a total of 50.75 cash. Now, according to history, everything plunged. Suppose you bought it back at 32. This time you have 50.75 cash, instead of your original 23 cash in 2002. So this time you buy 50.75/32 = 1.59 shares with your after tax gain. Then you hold until 2014 where the price is 82.75. 

But you have more shares by a factor of 1.59. 82.75 x 1.59 = 131.24

the buy and hold from 2002 gives you a pretax value of 82.75 up to the present. But the other method that sold and reinvested the after tax capital gains gets a value of 131.24


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## RBull (Jan 20, 2013)

Hindsight is often a great thing.


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## Pluto (Sep 12, 2013)

Thanks Harold. The picture you paint is quite believable. (I nominate you for the official forum economist.)
The next 6 to 12 months of watching the world's economies will be very interesting.


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## Pluto (Sep 12, 2013)

RBull:
Foresight is even greater. 

Buy during times of pessimism. Sell at a time of optimism. 
So, justaguy bought bmo in the depths of 2009 despair, and got a great price. Should he sell and pay the tax during a time of optimism? I think it is a good idea, partly because he has already demonstrated a capacity to buy low. that means he can do it again. Another reason is Bull markets don't go on forever and right now people are buying bank stock for way more than it is really worth.


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## RBull (Jan 20, 2013)

Pluto said:


> Foresight is even greater.


When you're right, yes.


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## Pluto (Sep 12, 2013)

Another example of the pessimism/optimisim indicator using BMO.

In Oct 2008 %bullish advisors was very low. One could buy BMO for 38 at that time. (Typically such signals are early, so one does not need to react right at that point, but for the sake of an example, I just pick that point, Oct '08, to buy.) 
This year % bulls was in a very rare historical high range. BMO is around 82.00 

This is how one can identify times of pessimism vs optimism and buy low, sell high. 

By adding other skills, such as watching price and volume movements for clues to direction, one can even do better than just blindly following the main psychological indicators.


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## Pluto (Sep 12, 2013)

Article: We Are 6 years into a 20 year bull market. Belski. 

http://www.cnbc.com/id/102211966?trknav=homestack:topnews:10

Remember back in 2000, near the top, a hot selling book came out called "Dow 36000". Look it up now and read the reviews. 

I believe such articles and such books are signs of euphoria. What they proclaimed is, strictly speaking, not impossible. But is it probable? I think not. There are many people who, having made a ton of money, get carried away and start thinking the improbable is likely.


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## Pluto (Sep 12, 2013)

RBull said:


> When you're right, yes.


I'd rather be approximately right, than perfectly wrong.


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## Just a Guy (Mar 27, 2012)

Pluto, 

While your hindsight may show that selling and paying taxes are a better solution, it forgets about the fact that I'd lose the 10+% I'd be giving up as an almost guaranteed return on my investment from the dividend... How long would that money earn nothing while I waited for the stocks to go back on sale?

If I sell during the euphoric period, chances are there is nothing to buy. So my money would sit, earning nothing, while I await disaster...

It's never as simple as people think.


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## Pluto (Sep 12, 2013)

Justaguy:

I think if you calculate the dividend dollar amount, (not the %) you will find it is not a deciding factor. 

EG 10 % on 32 = 3.20 (this is assuming you bought it at 32 in 2009)

Stock goes up to 83. Assume sale. and after tax gain is 38. plus the original stake of 32 is 70 cash. 

If you buy the stock back later at 61 (a 25% drop) using your entire 70, you get more shares by a factor of 1.34. (70/61=1.34)
But the cash dividend is still 3.20 per share, and you have more shares. So 3.2 x 1.34 = 4.30

Your yield at 61 in % terms is 5.25%, but the actual cash received (4.30) is higher because you have more shares.

( I should add that this is paying tax at a 50% marginal tax rate, because you said you would pay 25% tax on the gain. At marginal tax rates that are lower, the picture gets even better. Also, when the next bull market arrives you will get more capital gains because you have more shares).

Plus, I don't know what you mean by waiting for disaster in cash. Storing value in cash, or short bonds, temporarily is not awaiting disaster. Its awaiting opportunity. 

And finally, I say again, I'm not trying to tell people what they should do. I'm talking about what is possible if one is inclined to do it. Moreover, this is the type of market that entices the inexperienced retail investor to go all in at a very bad time. Hence, the thread about euphoria vs pessimism.


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## RBull (Jan 20, 2013)

Pluto said:


> I'd rather be approximately right, than perfectly wrong.


On that we agree, along with anyone else I can think of.


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## Just a Guy (Mar 27, 2012)

Pluto said:


> Plus, I don't know what you mean by waiting for disaster in cash. Storing value in cash, or short bonds, temporarily is not awaiting disaster. Its awaiting opportunity..


You're assuming that the stock will drop quickly...what happens if the stock continues to climb to $110, before correcting to $95? I'm sitting earning less than 2% waiting for the stock to drop to $61.

Remember the market can remain irrational longer than you can remain solvent.

Everything works well in theory, and it can even be proved by looking back at historical records...unfortunately past performance has little to do with what the future holds.

If I don't sell, I know I get the dividend...if I do sell, I may do better...then again, I may not.


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## Pluto (Sep 12, 2013)

JustaGuy:

Your skills at distinguishing a bad real estate investment from a good one are excellent. Did you ever consider translating and transferring those skills to stocks? By buying BMO way back in 2009, you are already 1/2 way there. 

I'm not sure where you got your 110 price target from. That's almost 35% higher from where it is now. It has a 5 year earnings growth rate of 5%. its p/e is near its historical high. It looks like it could take 3-5 years to make 110. In the mean time the odds are very high there will be a bear market between now and 3-5 years from now. 
When one considers that the S&P 500 is in all time highs, but BMO is not participating in the same way - That is its highs were last September, and it hasn't managed to reclaim its highs while the S&P has. BMO looks tired. 

You are quite right, past performance has little do do with what the future holds. That's why taking the last 5 years of performance and projecting it into the future is a bad move. BMO is a glider. It is relying on an up draft to stay afloat. Right now it is floating on extreme optimism. And even then it isn't hitting new highs. That's a clue that the euphoria over Canadian bank stocks is fading. 

Over the next 3-5 years I think the odds of it getting approximately to 60 before it gets to 110 are very high. 

However, I have nothing against a buy and hold forever strategy if that's what people are committed to. It is an easier workable strategy provided one has stocks that don't go broke and are growing at least a little. For me, a 5-7% growth rate isn't good enough to hold right through optimism, euphoria, and then to the depths of pessimism. Obviously I'd rather get rid of them when they are over valued.


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## Just a Guy (Mar 27, 2012)

Pluto, I do invest in stocks, and have done quite well...though some of that I attribute to luck.

I have bought stocks in the past, which I planned to sell when they doubled...but then I found I didn't follow the stocks often enough and when I'd look at them again, they'd gone much higher...so, in a way, I do apply my real estate policies to stocks.

As in real estate, there are ways I could make more money...I could sell my properties for the capital gains and buy bigger places with the money...I could flip places...I could buy presales, or become a developer...

But, I've found that's not in line with my lifestyle. I don't want to follow stocks, or even real estate...these are hobbies of mine, ones that I'm good at but, then again, I've found a system that works for me, so I don't mess with it. Is it the perfect system, far from it, but it's better than most people's it seems. 

As for the $110 number, I just picked it out of the hat...I've got no idea where the price will go (in fact I had to look up the current stock price and dividend when we started this thread). 

I remember when I bought at $28 though, people thought I was stupid...it went down to $24 I think...no one would touch banks because in the USA they were failing...a few months before Moneysense rated BMO quite high in their annual 200...

Maybe I just have a good eye for value be it in real estate or stocks.


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## Pluto (Sep 12, 2013)

What ever works for you. (Flipping real estate, due to time and transaction costs and so on, is, I agree, not a great idea. Unloading an over valued stock is almost free in terms of time and costs. However, I get you. It ain't your style.)


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## Pluto (Sep 12, 2013)

I have been meaning to update this thread for some time, but was too busy. 
One update is to contrast euphoria with the fear and pessimism seen in oil. I think pessimism in oil peaked around the time $20 oil was being projected as a possibility. In my experience, the worst, most pessimistic projection never happens, and its a great time to buy quality stocks. 

The other update is to identify pockets of Canadian euphoria post interest rate cut. I find the interest in REITS to be most intriguing. Piling into REITS seems to be euphoric and a mistake. For example, the market just gave holders of XRE, and 
ZRE a second chance to take profits at unusually high prices, yet apparently some folks are aggressively buying at what is likely to be a peak. For example, XRE is so high it is yielding only 4.6%, whereas in 2009, a time of exceptional pessimism, it yielded over 10%. I suspect most buyers of REITS now, will experience buyers remorse. 

It is much better to buy survivors during times of pessimism, and sell them some years later into euphoric rallies.


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