Why I strongly dislike all time high stock markets and Buffett seems to agree with me? 6


 

Do you freak out when the markets drop?

 

 

 

…………………Did I hear yes?

 

What about when the markets are at all time high?

Stock markets are all time high in many countries right now and I am freaking out.

 

 

 

All time high stock markets

Dow Junes reached 20,000 for the first time in January 2017 then now it is flirting around 21,000.

 

There she goes… Just like the one I dated when I was 17. She left many sad and crying memories to an emotionally immature boy.

 

Canada’s TSX is no different. It jumped from 12,000 to 15,500 (up by 30%) over a year and it is also at all-time high.

 

The history tells us how crazy this bull run is. It is now officially the second longest bull market since 1928.

The longest we had was the one from 1987 that lasted until early 2000.

 

That saddens me deeply. Yeah… How irony.

 

Well… it made me happy to see our net worth showing significant growth but at the same time, I am finding less and less values lately compared to a year ago.

 

A year ago, everywhere I look, I found beat-up stocks of high quality companies. Most of high quality companies in my watch list was on sale by 5-20%. Now I feel that most of them are 5-20% more expensive than its fair value. I am very hesitant to deploy more capitals into the companies even though they are super high quality. The reason is simple. Because they are expensive.

 

Same thing happened during Brexit around at the end of June 2016. Many companies were on sale and I squeezed out my available capitals into the following stocks right after Brexit and they are all up by 15-35% now. The reason? Because they were all on sale… 

Easy $5,000 was made.

 

 

And check this out. Linda HasenFratz, the CEO and founder’s daughter of Linamar Corporation bought 1,000,000 shares of Linamar during 2008 financial crisis @$3.65 and $3.75. I am sure some people would have told her to check her brain activity status thinking that she may be crazy because the company would go bankrupt. But why??? just because the share price is low? because all investors left? Does it mean the company would go bankrupt?

Maybe…. but maybe not. I know that the sentiment of car industry was probably lowest in many decades but still… great companies will survive during difficult times and thrive during economic boom.

 

It is typically a great signal when CEO and the founder’s family member purchase their own stocks.

Anyway, how much is that $3.65 share now?

$60.33!!!

That’s 1652% of return for last 8 years. Can you believe this?

I do believe it and I wish I had the knowledge I have now at the time of crisis because I would have bought it the moment Linda purchased it. I bought the shares at $44.59 and still made good amount of money, what if I bought at $3.65? that $9,586 would have become $158,000!

1,000,000 shares at dirt cheap price. I wish I was an active investor at the time. (Well… I was an international student watching the crash of stock markets at the sideline)… I blame my parents for not teaching me what I know now. I promise you my kids will be Korean Buffetts.

 

Too simple? 

 

Black Friday and Boxing day Theory

Think about it, I have a day job that gives the family constant source of income. Every month, the income after necessary expenditure is put into high quality companies that make passive income for us day and night. However every company out there has its price tag and you know we want to pay as little as possible to buy the quality companies. Not the opposite…

Many people go nuts during black Friday and boxing day sales and I highly respect that. The reason is simple. They need (or want) products and they are cheaper during the time than usual. 

We should really think about this seriously if you want to make money smartly. No one want to over pay but what’s irony is people in the stock markets seem to want to overpay and undersell.

 

 

The investor sentiment wheel

 

To sum up. I really dislike all-time high stock markets and you should as well.

 

How We Think About Market Fluctuations 

Not a day goes by without bringing out my favorite sexy old man. At least, Warren Buffett gets me.

Why so sexy!

 

Excerpt from

1997 Chairman’s Letter To the Shareholders of Berkshire Hathaway Inc.

1) A short quiz: If you plan to eat hamburgers throughout your life and are not a cattle producer, should you wish for higher or lower prices for beef?

 

2) Likewise, if you are going to buy a car from time to time but are not an auto manufacturer, should you prefer higher or lower car prices?

These questions, of course, answer themselves.

 

3) But now for the final exam: If you expect to be a net saver during the next five years, should you hope for a higher or lower stock market during that period?

Many investors get this one wrong. Even though they are going to be net buyers of stocks for many years to come, they are elated when stock prices rise and depressed when they fall. In effect, they rejoice because prices have risen for the “hamburgers” they will soon be buying. This reaction makes no sense. Only those who will be sellers of equities in the near future should be happy at seeing stocks rise. Prospective purchasers should much prefer sinking prices.

 

 

 

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6 thoughts on “Why I strongly dislike all time high stock markets and Buffett seems to agree with me?

  • TheDividendLife.com

    You’re right and I think it’s human nature to want to focus more heavily on the negative. When the stock market is crashing, CNBC has alerts and banners all over the screen and bringing in experts left and right…yet with the stock market at all time highs, you get a passing mention before moving on to the next guest. Buffet said it best though, “Be fearful when others are greedy and greedy when others are fearful”
    For more, visit us at TheDividendLife.com

    • monsterid
      Be Smart Rich Post author

      Yup. Buffett is a simple guy who likes simple stuff and that works out very well for him. However for many people, being simple is not easy especially on the stock markets. Thanks for stopping by!

  • mrspickypincher

    Ayyuuuup. I don’t think Buffett is the be-all-end-all when it comes to stocks, but these are excellent arguments to consider about all time high stock markets.

  • DivHut

    There always seems to be a herd mentality when it comes to investing. Somehow, we feel more comfortable investing when prices are rising and becoming more expensive instead of when prices decline. Also, the financial headlines always, always, always read ‘doom.’ Times are good, times are bad, it’s always a bad time to invest. DOW goes to 10K or lower don’t invest because it can still go lower, DOW is climbing to record highs, don’t invest because it can fall at any time. Just buy quality, diversify and stay the course no matter what. If our collective portfolios go bust, the world will cease to resemble anything we are familiar with today.