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A Cautionary Sign For Today's Frothy Market

During the heady days of the dotcom bubble it seemed a new stock market genius was born every minute. I remember meeting a bright-eyed young man, in his early twenties, excitedly telling me about how he was now a writer for a popular stock market investing site and how internet stocks were going to make everyone rich. “Worldcom is going to own the world” he told me, gushing with youthful enthusiasm.

For the decade ending January 2000, the market had made a parabolic move skyward. My chance meeting with the Worldcom wizard marked the top of the market almost to the day. Over the following two years the market fell some 40% from its high. It wiped out a lot of people. Worldcom filed for bankruptcy July, 2002.

 I’m reminded of this because it seems the genii are back.

Mila Kunis recently told CNBC “I've just started investing in stocks…I've been pushed kind of forward to take chances.” Then there’s Genna Salinas (who looks a bit like Mila Kunis), a sixteen-year-old stock picker who was recently interviewed on Bloomberg. Genna advocates buying Google (GOOG).

The emergence of the genii is one more indicator the market is getting frothy and may be close to a top, in my opinion. When the new kids on the block start rushing in, I believe it could be time to edge closer to the exits. But what of market lows? Is there a celebrity sighting that could be used to indicate a good time to buy?

One well-known figure to beware of after stock market losses is none other than Santa Claus. In 1984, a doctor outside of Pittsburgh, after incurring stock market losses, dressed up as Santa Claus and kidnapped his broker for twelve days during which time Santa zapped the broker’s sensitive body parts with an electric instrument resembling a cattle prod.

I believe Santa was a good buy signal in 1984, and the Worldcom wizard was a good sell signal in January 2000. Now we have Mila Kunis and Genna Salinas. When the risk part of risk/reward apparently gets forgotten by the market’s eager newcomers, I think it may be wise to ask yourself Clint Eastwood’s famous Dirty Harry question: “Do you feel lucky?”
Chris Rees

Chris Rees

Tenstocks was created by Chris Rees, a private investor. He has been featured in Forbes, Dow Jones Marketwatch, Britain’s The

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Chart of I:DJI
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