We are in a tremendous bull market in almost every asset class. Real Estate is up. Private equity valuations are high and companies are getting bought at big multiples. Venture Capital company valuations are high. The stock market has been a big bull. Some of this is due to true innovation and actual profits. A lot of it can be credited to 0% interest rate pegs in the world central banking community.
All over the place, I see all kinds of excuses for the valuations. “It’s different this time.” “It’s a new paradigm.” When markets get ahead of themselves, those are typical reasons. I can imagine someone in Holland telling another investor why this tulip bulb was something special. It’s what people said in 1999. I will agree with people that this is different than 1999, but it doesn’t mean valuations of some companies aren’t ahead of .
Bear markets have a way of thinning the herd. Warren Buffett likes to say when the tide goes you discover who has been swimming naked. It ain’t pretty.
People get emotional about making money. But, emotions really affect them when they lose it. You never hear of anyone committing suicide or having extreme health problems from making too much money! One of the dangers I see with the new crowdfunding rules is that when people lose money, they won’t be able to handle it. A sort of permanent depression seeps in to their subconscious. There is nothing anyone can do about it.
My hope is that they don’t lose faith in free markets or the entrepreneurial process. Since 2008, I have seen more than my share of anger over the big banks-when that anger should be directed toward government regulations that enable the creation of the current big bank dominated system.
Trading bear markets is difficult. In 1987, I saw how it affected people mentally and physically. You could see that some floor traders were not cut out to be traders at all. They were as out of place as a polar bear in the Amazon. They were exposed. Not because they lost money, but because they literally couldn’t physically function. I even saw people that weren’t losing money have problems. They froze. They had health problems. Young men had aches and pains surfacing in their bodies that were from the pressure of the market. The screamed, bitched and blamed everyone else. The stress crushed them.
I always tell entrepreneurs to interview their investors as much as their investors interview them. The most important companies to contact are the ones that failed. How did that investor act? It’s telling to know how investors act in downturns. You tend to see their true character.
Did they offer solutions? Did they continue to communicate constructively? When it looked like they were going to have to assume a loss, did they treat people badly?
There are plenty of people that have entered the investing community in the last five years. They have never seen a bear market in anything. If a bear market ever hits, they might find that they are more comfortable building companies than investing in them. Not everyone is cut out for this, and that’s not a good or bad thing. It just is.