The Retail Crowds…

by FI Fighter on December 9, 2015

in Precious Metals, Real Estate Thoughts, Stock Investing Thoughts, Thoughts

crowds - 1

Early financial independence is NOT easy to achieve… If it was, quite frankly, everyone would be wealthy and out playing on the beach instead of spending all day trapped inside a darkened cubicle. But in order to become financially independent, most likely you will need to invest wisely during your most formative working years…

Unfortunately, for many of us with busy careers, we just don’t have the time and bandwidth to follow the markets all that closely… So, instead, we do the easy thing… We listen to Jim Cramer, we invest exclusively in index funds, we chase real estate when it is setting new record highs because all of our co-workers, friends, family, and dog are telling us that it’s a “can’t miss proposition”, etc.

But how often does following the herd mentality ever work out as it pertains to finances and wealth creation?

Just think about that for a second…

If doing what was popular produced AMAZING results, time after time again, shouldn’t everyone you know at work be filthy rich by now?!?

All Rallies End

The reason I believe that herd mentality does not work all of the time is because the euphoria has to come to an end…

Investor-Psychology-Cycle-041614

At some point…

The dot-com boom was NOT different…

The subprime mortgage mania was NOT different…

This current era of ZIRP financial engineering will NOT be any different…

All good things come to an end… You cannot fight nature and expect to win indefinitely… There will come a point in time when fundamental valuations will matter again in the marketplace…

Further, Wall Street will only be able to squeeze out so much remaining juice left from this Fed-induced super bubble before even they are exhausted and want to call it quits.

And no doubt, they will find something new to latch on to which will in turn help them make their next round of BIG bucks (like shorting EVERYTHING on the way down)… Just don’t expect them to tell you and me about it…

Or when it will happen…

Unfortunately, there are ALWAYS those investors who are late to the party (of course), and even now, insist on piling on in after all of the meat has already been picked off the bones…

Momentum Stocks

If only I was better with market timing… I would totally short all the large-cap momentum stocks (with insane valuations) that everyone loves:

My Short List:

Shorts

I’ve got a few more esoteric names as well, but these are the OBVIOUS ones that everyone knows about…

The FANG group, plus a few other ones who are currently trending outside of the stratosphere.

Income Stocks

As it pertains to income producing stocks, I’m also staying very far away. In an era of Zero Interest Rate Policy (ZIRP), it’s no secret that everyone is starved for yield. No doubt, fixed-income individuals and retirees have been buying up the most popular income stocks like CRAZY! 

And as we well know, the retail crowd is only good at doing one thing during the late stages of an aging bull run — Similar to momentum stocks, these income producing stocks have been lifted to newfound heights…

Can you say… bubble?

I’ve said it before in the past, and I’ll say it again — I don’t believe in struggling with my investments. It has never made sense to me to try and force fit a square peg into a round hole…

As much as I think the world of the “best of the best” income producing stocks, you aren’t going to convince me to buy: Pepsi (PEP), 3M (MMM), Realty Income (O), General Mills (GIS), Procter and Gamble (PG), etc.

Not at these absurd levels…

Perhaps, if these stocks slashed their P/E by HALF, I might be interested…

Maybe…

When in doubt, if the game sucks, I’m going to go play another one instead…

Expensive Real Estate

As an owner of eight rental properties, you could say that I have a strong affinity towards real estate… It’s a wonderful asset class that has made a countless number of freedom fighters financially independent!

Nevertheless, I don’t make any exceptions for absurdity…

And right now, I want absolutely nothing to do with Bay Area real estate.

Current valuations are beyond ridiculous, and you will never convince me that “now is a good time to buy” when the median single family home (SFH) is sitting well above $1MM, cash flow is beyond NEGATIVE, and where your “cash flow numbers” stipulate that your tenant has to fork over 50% of their NET paycheck just to pay YOU!

That doesn’t sound sustainable to me, dude…

If I didn’t get in at much lower prices (and operate under MUCH BETTER margins than anyone jumping in today), I would be highly tempted to sell…

But, nonetheless, the retail crowd is as interested (if not more so) in this asset class as ever before!

Haterade

So, in summary, I don’t like: momentum stocks, income producing stocks, or expensive real estate…

Am I just a hater?

I’m sorry, but what can I really say? I’ve learned to buy things ONLY when they are on supersale…

Right now, I only like cash and gold…

Which probably explains why this blog has never been more unpopular… 😉

But let’s examine my own track record:

Best Buys:

  • Apple (AAPL) stock in 2008 (what’s an iPhone?)
  • Bay Area real estate in 2012 (empty open houses existed once upon a time…)
  • Tesla Motors (TSLA) stock in 2013 (electric cars have range?)

Worst Decisions:

  • Alibaba (BABA) stock during its IPO in 2014 (yes, I shamefully admit to having participated in the Day 1 mass hysteria)
  • Piling on late to biotech in 2015! (I got out after only a few months when I finally realized how insane this idea was)

 

I realize that past performance is not indicative of future success, but if my own history is any indication, I typically do much better when I am buying and I can hear the crickets…

The last time I followed the masses, I ended up with a black eye…

Ouch…

Lesson learned.

 

I’m staying far, far, far away from the retail crowds from now on…

 

And although I won’t touch AMZN stock with a 100 ft pole, I will shop on Amazon on Black Friday so that I can avoid this mess…

 

Happy Hunting!

{ 11 comments… read them below or add one }

1 BeSmartRichNo Gravatar December 9, 2015 at 9:39 am

Haha your blog is very popular among true value investors. I love your attitude towards market and I am more confident that your strategy will play out very well for you in the future. Just don’t know when the momentum will turn around but it eventually will.

Cheers!

BSR

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2 Midwestern LandlordNo Gravatar December 9, 2015 at 9:40 am

Agree with the crazy valuations. WMT with a $190B market cap and AMZN with a $312B market cap. Really? Facebook stock looks way overvalued to me. Really all of the stocks you mentioned. I would not feel comfortable at all having a sizable net egg in any of those stocks.

I only wish I was getting this advise back in the dot.com stock disaster in 2000 / 2001. I really got burned and it is very clear now I was very naive. Sometimes the best things to do are nothing. This can go with any asset class. I love real estate, but there are real estate deals I would not touch with a ten foot pole. Either due to valuation or location, etc. You are looking at things objectively and I applaud you for that. Don’t worry about slower traffic. It is not about a popularity contest or following the herd. If it was, everyone would be super rich and retired. I can’t relate as much to the commodity sector articles because I am pretty much all in on the real estate side, but I certainly can appreciate where you are coming from and the underlying facts.

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3 JonNo Gravatar December 9, 2015 at 1:38 pm

Shorting based on value alone is a very bad idea, and something generally avoided by professional investors.

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4 PepeNo Gravatar December 9, 2015 at 2:26 pm

I totally agree with you in the way you aproach investments. I try to do the same and I think is the best way to make money. Cheers

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5 TawcanNo Gravatar December 9, 2015 at 2:33 pm

Some of these stock’s evaluation are simply out of wack, not to mention a lot of companies’ evaluations, companies like Uber, Snapchat, and etc.

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6 No Nonsense LandlordNo Gravatar December 9, 2015 at 5:25 pm

Great analogy and way to picture the market mentality. I am just going off tonight to purchase a single family. Stay tuned…

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7 JoeNo Gravatar December 9, 2015 at 9:15 pm

I would agree things are looking rather outlandish currently. You were spot on saying how zero interest rate policy has inflated real estate and stocks significantly. This being said there are deals out there in any market. It will be very interesting to see how things shake out.

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8 SimonNo Gravatar December 9, 2015 at 10:49 pm

Someone should have told me how itchy the buying finger becomes when there’s mass hysteria in the markets and valuations just keep rising, even though underlying earnings are not. It’s extremly hard not to buy everything, which is why i suppose the general theory is that “everyone buys” on the top. It just seems so appealing…. The repeated mantra of all investors is “patience” but damn, it is hard to actually live by… Guess i have a bad case of the FOMO..

Ironically enough, the only thing that isnt shining is gold stocks. Assuming history is correct in saying that the history repeats itself it would seem a no-brainer to buy mining stocks and back off from blue-chip stocks at the moment. I suppose one can only trust that this will happen and stay away from most stocks at their current valuations. Although for instance, P&G has come down quite alot from it’s highest notation already, perhaps warranting a trial position.

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9 ClemensNo Gravatar December 10, 2015 at 12:32 am

Your financial blog is for me the best in the world!

Greetz from Germany!

And keep stacking! 😉

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10 BSNo Gravatar December 10, 2015 at 3:13 pm

I like your style
When I tell my conservative friends I am only putting in the minimum to get the match in my 401k.
They say that’s to low.
When I ask when they are retiring they say 60+
I say 45
Why because of REI and the four pillars thats where my extra saving goes.
Keep up the great work
Oh and BABA got me too

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11 chillywitNo Gravatar March 7, 2016 at 9:35 pm

Great blog dude. It’s practical without any BS.
I was curious to know why you didn’t choose mid and long term maturity bond funds vs gold as a hedge for a deflationary equities market. You said you’re invested in the USD but gold tends to do well when the USD declines. Can you clarify?

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