MONEY
to valuations before the boom was finally over. They went up further than any rational person would have thought possible... If you were smart enough to know that valuations alone don’t kill bull markets... and if you were bold enough to simply stay on board as the stock market “melted up”... then you would have made an absolute fortune. To be honest with you, I was neither smart enough nor bold enough to do those things... I personally missed out on most of the upside in the late 1990s. And I missed out on basically all of the upside of the dot-com boom in 1999. I didn’t believe in it. It didn’t make rational sense. Stocks were record-expensive, and people were acting completely irrationally. Now, I am older and wiser. (Certainly older... hopefully wiser!) I have stayed on board today’s bull market longer than any other analyst I know. My experience taught me two important lessons... Valuations are high today – but not absolutely crazy based on history. Valuations alone don’t kill bull markets. Most people say that stocks are near record- high valuations. The CAPE ratio is above 30 today, inching back toward the dot-com boom highs. But after my 1990s experience, I look at how stocks soared from similar levels back then. And I believe we could see years of gains before we see true Melt Up valuations.
People are not acting completely irrationally – not yet. They’re worried about valuations. They’re worried about interest rates. They’re worried about trade wars. At some point, they’ll notice that the sky isn’t falling... And they’ll stop worrying. They’ll buy with reckless abandon. Valuations won’t matter one bit. Their only worry will be missing out on the huge gains their friends and family are racking up in the market. As we saw in 1999, that is the hallmark of a true market top. We’re not there yet... Not even close. Today, we have high levels of fear and worry. Prices have pulled back... Volatility has picked up... And we are nowhere near the optimism and excitement that signals the top of the market. That’s why I still urge you to stay long U.S. stocks.
Dr. Steve Sjuggerud holds an MBA and a PhD in finance. He’s worked as a stockbroker, vice president of a global mutual fund, and a hedge-fund manager. His track record has landed him on various television networks including stints on Fox Business News, Bloomberg’s Taking Stock , and CNBC, among others.
American Consequences 21
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