No Bottom Yet: The Dumb Money Is Still Buying

I'm looking for the bottom in stocks as hard as you are. Unfortunately, we're not there – yet.

I say this because mom-and-pop America is "buying the dip." And this is not good news.

Think of it a bit like a game of poker... "If you don't know who the patsy is at the poker table, you're the patsy." (Legendary investor Warren Buffett likes to say this, but I assume the saying is older than Buffett.)

In short, when you see an inexperienced player show up at a poker table, you know you're about to take his money. It's just the way the game goes.

It's only a matter of time before he loses it all – because, well, he doesn't know what he doesn't know...

Inexperienced investors are in the same boat... They don't know what they don't know. So typically, when a big stock market fall hits the mainstream news, they appear out of nowhere to "buy the dip." Unfortunately, it rarely ends well.

I bring this up because I'm seeing this type of behavior right now from inexperienced investors...

This Bloomberg headline from last week tells you everything you need to know: "In Midst of Chaos, Nasdaq ETF Gets Biggest Inflow in Two Decades."

The article was written a few days ago. Since then, this month's inflows into the Nasdaq exchange-traded fund ("ETF") are now at an all-time high.

The three previous records for monthly inflows into the Nasdaq ETF were back in 2000 – as the dot-com bubble was crashing. The months were October, November, and December 2000, to be exact.

The most likely buyers back then were individual investors "buying the dip." And by those final months of 2000, that "dip" in the Nasdaq had landed at around 3,000 points – down 40% from the peak.

Those investors got hammered going forward...

The Nasdaq hit a couple other major lows after they bought... in April 2001 and September 2001. The ultimate bottom didn't arrive until October 2002. If they bought around 3,000 points and sold at the bottom, then they lost more than half their money.

Today, inexperienced investors are buying. So, based on history, I believe the bottom is not in yet.

If you have followed my writing over the last decade or more, you know that I am an optimist... I am always looking for the opportunity – somewhere.

I'm also a realist... I try to call 'em like I see 'em.

The optimist in me says that – someday – stocks will soar far higher than they were at the start of this year.

The realist in me says that we still have more room on the downside right now, as inexperienced investors get hurt the worst.

I'm not a buyer... yet. Now is the time to be patient.

Good investing,


Further Reading

With the markets falling, people are panicking. But that fear hasn't spread to non-market watchers. And that tells us that the bottom in U.S. stocks isn't here just yet... Learn more here: When the Bottom in U.S. Stocks Will Arrive.

"Almost every investor I talk to about risk underestimates the volatility of his or her own portfolio," Porter Stansberry writes. And while you're waiting to get back in when the time is right, now is also the perfect time to hedge your portfolio and stay afloat in the bear market... Read more here.

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In every bear market, folks will expect the trend to turn around soon. But that isn't always the case. And sometimes, you're much better off just cutting your losses short...

Market Notes


The coronavirus is accelerating the "retail apocalypse"...

Recently, we've been highlighting companies hit by the coronavirus. From cruise lines to airlines to homebuilders, the virus is taking a toll on nearly every business today. And that's bad news for the already troubled retail sector...

Kohl's (KSS) is a $2.5 billion department store. With growing competition from online shopping, Kohl's sales fell more than 1% in its 2020 fiscal year. But the coronavirus is making matters worse... Multiple states have issued "shelter in place" orders and shuttered non-essential businesses. As a result, Kohl's announced last week that it was temporarily closing stores nationwide through April 1, and it withdrew its forecasts for 2020. It also said it would evaluate its dividend program, suggesting potential short-term cutbacks.

As you can see in today's chart, KSS shares are plummeting. The stock is down more than 70% so far in 2020, and it just hit its lowest price since 1997. This is just one example of how the coronavirus is amplifying the retail apocalypse...