You should read Burry, he is an interesting man.
Once again I am paraphrasing but emotions run the market until fundamentals catch up and crash the market. That is what happened in 2008. The loans were bad but people kept buying them even though it was obvious to him they were bad. Once we hit a bump, the market started to dive.
Read about the tulips.
We keep repeating our mistakes
People get mad when Elon says Tesla is overpriced. He is right. The stock is overpriced.
Look at the multiples on stocks right now. It is insane.
I think we might have a new normal, whatever it turns out to be. The current S&P P/E is about 29. The historic mean is 16, and the last 10 years are averaging about 23. Which is the new normal?
A lot of money has been injected into the economy and a large chunk of it has gone into the stock market. People who haven’t previously invested now are. P/E is losing its relevance in the tech sector, where the new multiple is price/revenues because those companies have no earnings. A whole lot of folks appear to be going for the big winner but may pay the price in volatility. What that effect will be is uncertain. Analyses that I learned in business school may have little future relevance.
People who think the have avoided the tech sector may be in for a surprise. Apple, Alphabet and Microsoft are owned by many market index funds and etfs, growth funds and etfs, etc. If those take a hit, everyone will take a hit.
Some stocks like Tesla are overvalued. No one can argue against that.
Some stocks like SBLK and DOW are fairly or even undervalued. Will they lose 90% of their value in a crash like Tesla will? I doubt it.
When things are “chic” like electric cars and consumer space travel, their stocks get overpriced. Same thing for railroads in the 1800s and dot-com stocks in the late 1990s.
The thing that IS different is a very high percentage of Americans invest in the stock market compared to 50 years ago. A lot of them are baby boomers which are facing required minimal distributions from their retirement accounts. I seen that as a big headwind in the market.
Or as I say, nothing breeds failure like repeated success. People just leverage up and do the same thing until it doesn’t work. Then the leverage kills them on the way down.