The stock market’s volatility over the last year has undoubtedly been more than usual.
Because of this, we have seen many analysts calling for extremes on both ends of the market, both bull, and bear.
While no one knows exactly what the market will do next, nonetheless a year or two from now, when we hear that the current sentiment is comparable to the one of the tulip market crash that occurred in the 1600s, a further look into why may be wise.
The well-known personal finance media personality, Suze Orman, made the following comments on CNBC in regards to the current state of the market:
“I don’t like what I see happening in the market right now … The economy has been horrible, but the stock market has been going.”
And she’s absolutely right.
Despite the daunting data, like the fact that our employment numbers fell short by nearly 75% of our targeted goal in April, the stock market continues to barrel upwards, fueled mainly by highly speculative overvalued assets.
Phil Toews, CEO and founder of Toews Asset Management expects us to experience a market downturn of around 30% within the next one to two years due to a ramp-up in the economy and the Fed being forced to hike interest rates.
“Ultimately, this market will fail, and potentially spectacularly fail, primarily because of valuations,” Toews stated.
Renowned multi-billionaire investor Charlie Munger feels the same way recently saying, “I think it must end badly, but I don’t know when.”
Although Munger was speaking against a broad set of factors, the 1,200% surge that GameStop saw in just a few short months and also SPAC’s were the main culprits of his argument.
SPAC’s, or special-purpose acquisition companies, provide investors the opportunity to invest in startup companies or companies that are at such an infancy stage that they have yet to become publicly traded.
It provides investors the ability to become angel investors in a sense. In 2020, the amount raised from SPAC’s reached $76 billion, up $13 billion from 2019.
“I think this kind of crazy speculation in enterprises not even found or picked out yet is a sign of an irritating bubble,” Munger commented.
Again, everyone has different investment styles, behaviors, and beliefs, but the previously mentioned names are considered professionals in their field and revered by many for a reason.
Savvy investors believe that a correction is coming, and we both know that proactive, not reactive is the key to success.