Throwing Caution

As we begin 2021, the investing public is tied up in a “frenzy,” to quote Charlie Munger from a recent interview. This “frenzy” can be captured a couple of ways. Whether by the investment banking activities that usually coincide with poor market returns going forward (stock market failure) or by the sell-side research analysts playing hopscotch to raise their price targets over their competition in the most exciting stocks. Rather than look at Wall Street, which can often exact nefarious schemes and ideas on investors, we think it would be best to look at market participants to understand where we sit.

I was traveling from Las Vegas back to Phoenix with my family from vacation recently. As I pulled out of the hotel that we stayed at on the Vegas strip, “Caution” by The Killers began playing over my SiriusXM radio station. For the baby boomers in the room, The Killers were one of the most popular bands in the 2000s (for older millennials particularly). The band was formed in 2001 in Las Vegas and is closely associated with the city. With the Consumer Electronics Show not going on this week in Las Vegas, I thought there would be no better song to take us into the mindset of investors right now.

Let me introduce you to the featherweight queen
She got Hollywood eyes
But you can’t shoot what she’s seen
Her momma was a dancer
And that’s all that she knew
‘Cause when you live in the desert
It’s what pretty girls do

When investors look at the speculative activities of the last six months, they will find “featherweight” kings and queens that have “Hollywood eyes”. These are retail investors, not billionaires, taking their vision of the future into their stock market wagers. It’s exactly as David Dreman explained in his analogy of the red wing of a casino where there are small chip stacks with few green and black chips. They incorrectly believe the market is there to instruct you, rather than serve you, as Warren Buffett would say. Thus, they are playing table games that are in the house’s favor (read Wall Street).

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Michele Grant 1 week ago Member's comment

Not sure what "March 2020...right as millennials got going" means. Did you mean to say right as the pandemic got going?