Call of the Sheep to the Slaughter

Image: investmentzen Flickr via Compfight cc

Today’s Big News is the 11th straight record high on the Dow Jones Industrial Average (DJI). This streak of record highs is the longest such streak since 1987.

This streak is being attributed to the election of Donald Trump, which I suppose is a reasonable attribution. However, I am reminded of the counsel of a wise friend who insisted that when you start hearing explanations of why a particular move in the stock market occurred, what you are hearing is almost certainly wrong. If the people reporting that news actually knew what they were talking about, they wouldn’t be talking about it, but acting on that information.

And, he would add, when you see the current highs of the stock market being featured as front-page news, it’s time to get out of stocks. It is the “Call of the Sheep.”

Back in 1929, Joe Kennedy was getting his shoes shined on the way to his office. The shoeshine boy gave him some stock tips. Upon hearing that, he proceeded to sell all of the stocks that he owned. When the crash came a few months later, he was sitting on a pile of cash. He had correctly concluded that when shoeshine boys have stock tips, the market was way too popular for its own good.

Shoeshine boys, along with paperboys on the streets, are a bygone relic of history, but the effect is still with us. People who know less than nothing about investing are currently going ga-ga over the stock market.

The more cynical among us believe that the stock market is rigged.

When the stock market is front-page news, I believe that is a warning sign.

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