The market is a hot stove right now, or, at least large cap technology stocks are. Jim Cramer used to use this analogy in the late 1990’s and it was perfect. You picture a diner near the Holland Tunnel – the guy at the griddle dropping an egg on it and it’s cooked in a second. Two seconds and it’s burned.
Looking at the moves in Netflix and Twitter and Amazon and Google and you’d have to say it’s as good as it gets for shareholders of these names or the indices that contain large amounts of them.
My colleagues Ben and Nick have been thinking and writing about the inevitable flip side of this type of environment, which is surely something we’ll have to contend with eventually.
Ben talked about why the next bear market is sure to be even more painful for our readers than the last one was, in light of the fact that they’re likely to be even more heavily invested this time around, with more expensive lifestyles and more to lose in a drawdown.
Ben creates hypothetic portfolios for Millennials, Gen Xers and Boomers and assumes a constant contribution through the tumult of 2007-2009. He looks at how much their worst drawdowns were and how long it took for them to recover. Then he contemplates what this would look like should a typical bear market begin today. You can’t afford to miss this post.
Nick Maggiulli’s post this week looks at the trauma caused by market crashes and references the explanations for how these episodes end up distorting our entire mental makeup once we’ve come through them.
Normal, nontraumatic memories are owned and integrated into the ongoing story of the self. These are, in a sense, like domesticated animals, amenable to control, traceable. In contrast, the traumatic memory stands apart, like a feral dog, snarling, wild, and unpredictable. This is in part what the psychoanalyst I interviewed meant when he said that, “trauma destroys the fabric of time.”
In “The Evil Hours”, Nick provides us with a very powerful way to think about how the eventual downturn is going to affect us. Being aware, in advance, is definitely going to be a key to your own survival. Make sure you get to this one now:
If you need to talk to someone about how much risk you’re currently taking, and what your portfolio is prepared for, you should talk to us here.