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Going into 2020, is there too much optimism in the stock market?

In fact, there is not too much optimism despite markets moving higher. Too many people are sitting aside expecting a crash, too many investors are pulling money out of the market (check equity funds outflows), too many pundits are speculating and competing in predictions who would nail the coming crash and recession.

All this is in fact a bullish behavior. At some point, these people who are now scared and pulling out of the market lamenting that they have missed the rally and they start chasing it coming back in. That will be the time when even a plumber in a small rural town in midwest America becomes a stock analyst and investing guru. Then you should start being worried.

However, I am talking about a major bull trend for which I expect additional +/- 18 years to last. But, that doesn’t mean it will be a straight run up. No, there will be pullbacks (up to 5%) corrections (up to 20%) and sideways moves along the way.

Too many people miss the big picture, many do not even look at the big picture, and then lose money (like those who are now pulling their money out of the markets expecting crash. Not only they will miss the rally, but they will enter back at the very wrong time when the market rolls over and crash and they lose again.

Here is a picture from 2016 where everybody predicted end of the bull market saying that it cannot go any higher. It must crash again. The market was going up for too long. This is not normal. Brace yourself… Well, look where we are today.

Here is a top

Because of the lack of the big picture, people tend to be trapped in their recency bias. All they know and remember id the previous crashes and tops. and there fore they are expecting crash and predicting a top as people did before them, just look at the picture above. When this recency bias end and is replaced with complacency, they you should be worried. But we are not there. if you keep monitoring news headlines, all you will see is who is predicting a crash and when, trade wars worries, economic slowdown and subsequent recession, slowing this and that… just watch it daily and you will get frustrated of how much pessimism is in fact out there.

Here is a big picture indicating that we are in a secular bull market which will last for some time:

Here is a top

Here is a top

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