("How are the Stocks?" was the 1720 equivalent of "Is the market up today?")
Another typical bubble behavior is that people quit their jobs to become traders. Leaving aside the tragic fact that millions of Americans are out of work in the pandemic, there isn't much evidence that people are quitting their jobs the way they did in 1720, 1929, 1999 and other notorious bubbles.
Most market bubbles go through four phases of acceleration, says neurologist and financial historian William Bernstein: After speculation becomes the center of gossip and people quit their jobs to do it, skeptics are ridiculed and, ultimately, the skeptics throw in the towel and join in. At that point, the bursting of the bubble is imminent.
Back in 1720, that happened when Sir Isaac Newton, who had made a quick profit riding South Sea shares up and then sold, barged back in. Evidently the fear of missing out was too much for him. This time, his investment was nearly wiped out.
The same thing happened in early 2000, when leading hedge funds, after years of refusing to bet on technology shares, knuckled under and bought in-—weeks before internet stocks crashed.
In today's market, most value investors aren't yet buying Tesla. And skeptics aren't being ridiculed. Nor are they all giving up on their skepticism. Nobody would call you an idiot for believing that stocks aren't cheap right now, and investors are sitting on trillions of dollars in uninvested cash-—hardly a sign that everyone has learned to stop worrying and loves this market.
Remember that there's always a market for calling the market a bubble. Analysts and strategists, portfolio managers and investment advisers, newsletter editors (not this one!) rake in money by predicting a market "bubble" is about to burst -- whether they turn out to be right or not.
Identifying a bubble is a sure thing only in hindsight. For now, at least, the main markers don't appear to be evident. That suggests to me that investos should proceed with caution, not fear.
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