I saw something last week that brought back memories: Doc Martens boots.
My bartender was wearing a pair of the classic black variety, which, apparently, are back in style after a long 20-year drought.
In case you’re unfamiliar with the brand, imagine something that looks like a combat boot but with a soft rubber sole and distinctive yellow stitching.
Ah, Doc Martens… Along with Seinfeld, flannel shirts, and grunge rock, few things are more quintessentially 1990s. It takes me back to my high school and college years when, for inexplicable reasons, dressing as an odd combination of British punk and Canadian lumberjack was all the rage among American teenagers.
I don’t intend to buy new pair anytime soon. While I’m as guilty as the next 40-something of desperately wanting to relive my youth, I realize how utterly ridiculous I would look wearing a pair of jackboots that look like they were custom made for a soccer hooligan.
Classic-style cowboy boots are more my style these days. In Texas, where people routinely spend more on a fully-loaded King Ranch Ford pickup truck that they would for a new Mercedes, wearing a pair of fancy cowboy boots counts as growing up and going bourgeoisie.
But beyond footwear, 1990s style seems to be making a comeback elsewhere… most notably in the stock market.
As measured by the Shiller P/E (also called the CAPE), American stocks are as expensive today as they were in early 1998… near the end of the greatest stock market bubble in history.
And while the objects of speculation are different – back then it was profitless tech stocks that no one really understood; today it’s cryptocurrencies no one really understands – we’re seeing the same bubble excesses.
Back in the 1990s, companies would add “.com” to their names and instantly see their share price explode. In the December 2001 Journal of Finance, researchers Michael Cooper, Orlin Dimitrov, and P. Raghavendra Rau found that changing the name of a company to an “internet-related” name resulted in an average abnormal return of 74% in the 10 days following the announcement.
Keep in mind, nothing in the actual underlying business had changed. It was simply the name on the front door. And that was still enough to send the stock price shooting to the moon.
Well, it’s no different today. Last month, the Long Island Ice Tea Company – which makes bottled lemonade and ice tea – changed its name to Long Blockchain, and instantly saw its shares soar by 500%.
It’s crazy, but that’s exactly the kind of behavior you see in bubbles, when cautiousness and prudence get thrown out the window.
High valuations like these make me uncomfortable because we all know what came next. The 2000-2002 bear market was one of the worst in U.S. history. From peak to trough, the S&P 500 gave up just shy of half its value.
That was bad in 2000, but it would be far more devastating today. The Boomers are retiring by the millions, and after the epic run we’ve had in the market, many are overallocated to stocks. A report published by Wells Fargo last month showed that the average Baby Boomer had about 60% of their nest egg invested in stocks.
Back in 2000, you could ride out a nasty bear market in stocks because your bond portfolio was likely throwing off 6% or better in current income. But today, you’re getting less than half that yield, which has encouraged a lot of investors to dump more money than they’d normally be comfortable dumping into the stock market.
If experience has taught us anything, it would be that buying and holding stocks at these prices is a dangerous game. But having a large chunk of your portfolio invested in the stock market isn’t necessarily a risky mistake so long as you’re willing to be tactical and sell when the time comes.
In the short term, expensive stocks can get even more expensive. The late stages of a bull market can be some of the most profitable. I mentioned that the S&P 500 is trading at early 1998 levels. Well, in the final two years of that bubble, stocks went on to gain another 60% before rolling over and dying.
You just have to be nimble and be willing to trade rather than long-term invest.
And that’s exactly what Adam does in his Cycle 9 Alert trading service. As you may have seen, his subscribers just booked a 400% gain last week and tripled their money in another recent trade.
So while this expensive market may make me uncomfortable, there’s obviously gains to be had. Click here to learn more about Adam’s short-term system.
Editor, Peak Income