The market has been on a nice run lately and many people think that the worst of our economic problems are behind us. In fact recently somebody told me that they were beginning to buy stocks “like crazy.”
The problem is, the person who told me that was my dentist.
There is an old saying that goes something along the lines of “when your dentist tells you to buy stocks, it’s time to sell,” (a variation on the “Time magazine cover” theory).
The concept behind this saying is that there always has to be a “greater fool” to sell your stocks to at a higher price in order to make money. This greater fool is also referred to as “dumb money.”
Your dentist’s day is presumably filled up with important dentally things like patients, cavities, and spit. He doesn’t have time to watch the markets on tick by tick basis because his focus is on running his practice. The theory goes, that by the time the markets have come into his purview, it’s usually via the constant attention given to them by the general mass media.
By that point everybody that is going go be in the market already is, and when the dentist buys he will have nobody else to sell his stocks to at a higher price and thus becomes a “bicuspid bagholder.” Hahaaa…hah…hah….biscup bag…..see….cause he works on teeth…hah…hah…..get it? Meh….!
Besides the dentist indicator, I have seen other non-traditional indicators of market health over the years.
For a long time, the amount of space my local bookstore dedicated to “Investing” titles could give me a clue. When the market was going crazy in the dot-com bubble of the late 90’s, it seemed as if they occupied shelves that went on for miles. But after the bubble popped they were reduced to one lonely “Charlie Brown” type shelf in the back corner of the store.
The sudden appearance of TV commercials for trading services or study courses can often be an indicator that you might want to start raising cash. And if you hear the terms “Ka-Chin-Go” or “Gorilla Trades,” run for cover.
But in the last couple of years I have started to see some correlation between the actions of what I call “Financial Superstars” and that of the market. It’s something you might want to keep on your radar.
Take for example the following chart showing the Dow Industrials topping on April 29th, 2011….
Now look at this article from the New York Times, dated April 29th, 2011….
Hey, I’m not saying that Erin Burnett’s move to CNN “top-ticked” the market……but if Maria Bartiromo suddenly changes networks, I’m getting the survival gear out and moving my family to a cave in the mountains.