As someone who was trading professionally (and successfully) in both 1999-00 and 2007-08, I have to say it *finally* feels like we're in the late stages of a bull market. I'm not talking about valuations or fundamentals; I'm talking about the zeitgeist. /1
The defining feature of late stage bulls is not price action; it's craziness. Think GameStop, and negative oil, and TikTok investors, and Davey. /2
This craziness is often driven by retail. Retail investors have more buying power, higher risk appetite, and fewer inhibitions than professionals. When retail enters the market, other investors get run over. /3
Everyone loves a good underdog story, especially one with a twist. So successful retail heists (like r/wsb YOLOing $GME to squeeze Melvin) get a lot of attention. This attracts new entrants, who drive prices even higher. A positive feedback loop sets in. /4
Institutional investors may publicly decry retail's entry, but privately they are only too happy to sell into it. They know that valuations are elevated, and would love to take profits without collapsing the market. /5
When people quit their day jobs to live off bull market gains, that's a sign that we're entering unsustainable territory. In 1999-00 it was dot-com day-traders on dialup. In 2007-08 it was house flippers in Florida. Today it's Robinhood. /6
Fortunes can be made in these times. They can also be lost. The rules keep changing; illiquidity is rife; bad actors are everywhere; lucky beats smart. The key is to not be the last person left standing when the music stops. Easier said than done! /7
The first fund blowups typically happen 12-18 months before the end of the cycle (LTCM Aug 1998, Bear Stearns Jul 2007, Melvin this week?). Their typical complaint is that it wasn't their fault; the market was just irrational. /8
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