Flags, affinity license plates, garments with team logos. There are lots of ways to use a symbol as an abbreviation for a full name. Investors use what are known as ticker symbols when buying and selling stocks. These date back to the ticker tape machine, an improvement on the telegraph. Symbols were used to allow for the very limited bandwidth available at the time. Even though that’s no longer an issue, the symbols remain. Some that I find interesting are BBBY, BEN, BUD, CAKE, CBRL, FUN, HOG, HEINY, KO, MMM and ZEUS. How many do you recognize? The correct answers appear at the end of this article.
While you’re working on this week’s quiz, let me share a non-symbol that seems pretty important to markets these days: FOMO. In case you don’t recognize it, I’m going to tell you what this one means – Fear Of Missing Out. In some ways, it’s similar to the phrase ‘Keeping up with the Joneses’, the name of an early 1900’s comic strip. That one came into popular usage during my childhood as a way to suggest that spending more (usually assuming more debt) was the best way to prove your worth – especially when compared to your neighbors. Back then, people watched what movie stars and recording artists were doing. These days social media influencers, athletes and video game players have joined the list of people worthy of emulation.
In the world of investments, FOMO was a significant issue even before it had an acronym. Does this sound in any way familiar? For no obvious reason, a stock quickly doubles in price, then doubles again. Am I talking about Zoom, Netflix or Tesla? None of the above. I’m talking about the South Sea Company’s stock price during the summer of 1720. London’s normally orderly market was overtaken by speculators who heard that making money investing in stocks was easy – they didn’t want to miss out.
Back in 2005, I wrote about a potential housing bubble in an article titled Tulip Bulbs, Tech Stocks & Housing Prices. In it, I mentioned the book Extraordinary Popular Delusions and the Madness of Crowds, noting that its author catalogued multiple economic bubbles. However, the book doesn’t mention Tokyo’s housing bubble of the late 80s, the “dot com” stock bubble of the late 90s or the housing bubble which ended in 2008. Perhaps that’s because, as thorough as the author tried to be, the book was published in 1851. Although times change, human nature, by and large, does not. My 2005 article preceded the housing crash by three years. Nimble investors continued to make money for a while flipping houses but we all know what happened to many others. Our approach to asset management is a cautious one, more concerned with not losing money during bear markets than with maximizing gains in bull markets.
During bubbles, markets continue to climb due to the FOMO. A consensus that prices have become unreasonably high forms only in hindsight. Markets have been moving up steadily since the March correction, really since the recession following the housing bubble-related crash in 2008. Why wouldn’t they continue to rise forever? I contemplated that idea in a 2010 article called Planting Corn in October. I wondered if continuing to do something that had worked in the past would always lead to the same outcome in the future. I think that’s an excellent question for investors to be asking today. In the past, most people invested through some sort of advisor, typically a stockbroker. While not trained to offer planning advice, most were seasoned in investing and could be a helpful resource. Today’s market is widely populated with do-it-yourself investors, lured by the (apparent) zero costs and, I’m afraid, largely driven by the FOMO.
Are we experiencing a stock market bubble today? Here are a couple of things that might be worth considering. Local company Cummins recently reached its highest valuation ever but not by delivering its best quarter ever. It was up because, while losing money, it lost less than some analysts expected. Or Tesla. Its stock has done amazingly well, based on it posting four straight profitable quarters. FOMO investors have continued buying, even though those profits are not from selling cars but from selling government-mandated ‘energy credits’ to other car companies.
I’ve quoted my earlier writings in today’s article, not because I believe that I’m the best source for such information but to make the point that investors have been chasing bubbles for hundreds of years. That includes tech stocks, bonds and housing bubbles in just the thirty years I’ve been advising people. Because we’re concerned about the potential for another market correction, we are adjusting our clients’ portfolios by adding a couple of hedge positions. Our friends who aren’t clients might consider doing something similar.
Thanks for waiting for the answers to the quiz: Bed, Bath & Beyond, Franklin Resources, Anheuser-Busch, Cheesecake Factory, Cracker Barrel, Cedar Fair (Cedar Point amusement park), Harley Davidson, Heineken, Coca-Cola, 3M and Olympic Steel.