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Dennis Conn wrote:
> If the common perception of the stock market is one of speculation without
> risk, at least as far as buy-and-hold sales pitches imply, then what IS
> "unreasonable enthusiasm"? It seems to me that the definition validates the
> opinion that the current lofty levels of the market, combined with the
> continued inflow of funds from an ob-sessed public, constitute a mania in
> the classic sense of the word.
Dennis:
This might seem odd, but I wonder in what sense the word "mania" applies here
at all. What makes current levels "lofty"? Why do you classify individuals
saving for retirement as constituting an *obsession*? Now, of course there is
risk involved, and certainly way too much for me - who, as an ultraconservative
player, never holds overnight. The bear is on the horizon for sure - it's
just a question of when - and it will be a big time and probably prolonged
pullback. So - does that mean that values are too high? What does too high
mean? How can a stock's price be too high anyway? I remember a trader I know
who shorted YHOO a little while ago, since he reasoned that it was
"overpriced." A couple of months later, it's up a further 50%. Is this
mania? Why would it be - traders were willing to pay a premium at prior levels
in order to capture expected growth (the stock price, that is), and were
rewarded for it. This might have constituted enthusiasm, but it wasn't at all
unreasonable - in fact, I doubt many traders had expectations that it would
move considerably less than it did. Is it overvalued now? Why in the world
would it be? Why would it be unreasonable to expect it to move higher still?
And this is an extreme case. Sure, a major selloff may take place in the near
future with it, but in the mean time, it hardly has been foolish to ride this
play while its charts still look great. As far as the overall market goes, it
doesn't require more enthusiasm to propel prices forward - the same or even
less would do. What it comes down to is that it isn't the least bit
unreasonable to expect investors to continue to allocate a percentage of their
income to it in order to reach their long term financial objectives.
Regards,
A.J.
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