Market Lab Report - Is Your Mo-mo in My FOMO, or is My FOMO in Your Mo-mo?

The FOMO (Fear of Missing Out) element in this market is perhaps the strongest I’ve ever seen in any market environment, including that of 1999/2000. Obviously, the influx of trade-from-home retail investors is a big factor in this type of thing, much as it was back in 1999/2000. Some of the youngsters out there like to think that this is all new, and that us old-timers “just don’t get it.”

Au contraire, we old-timers not only “get it” but we’ve traded this exact type of market before. The DotCom bubble market of 1999-2000 was much like the current environment, except that it occurred during economic times that were more utopian than the current dystopian backdrop against which the market trades today, and long before the influence of massive QE and fiat money-printing that began in 2009 and which continues to fuel rising asset prices. While the general velocity is  perhaps not as great as we saw in 1999-2000, the velocity and thus profit-potential in individual stocks within certain hot areas of the market at various times throughout the year has been astounding. From SPACs to space, Bitcoin to Silver, Work-from-Home to Shop-from-Home, EVs to EV-batteries, and more, hot themes that catch the imagination of retail investors now Trading-from-Home can rapidly reach a boiling point.

I remember back in early 2000 Bill O’Neil told me that if I was lucky, I might see another market like that wild, parabolic run we had in late 1999 into early 2000 “in another twenty years.” Well, he nailed that one, didn’t he? I also recall back in summer of 1997 I invited Bill to come speak to the brokers at the PaineWebber office I worked at in Century City west of Los Angeles. He gave a general market overview, discussed some individual stocks, and then went into Q&A. The topic of just how high the market could go came up, and Bill commented that sure, the Dow would eventually hit 30,000 or more. That comment was met with numerous guffaws from the audience of about 30-40 PaineWebber brokers. Well, guffaw no more, heathen!

In today's market, the influence of the retail investors and the FOMO-phenomenon is magnified by a significant enabling factor which is that larger numbers of small investors are now in the market than perhaps might have been in the past. Normally, someone with just $100 would have a tough time buying a full share of stock. But now that brokers offer fractional shares, one can now buy “$5 worth” of AAPL stock, for example, instead of a full share. This is referred to as share slices, making stocks as easy to buy as buying pizza by the slice.

This effectively turns big-stock leaders priced in the hundreds of dollars per share into penny stocks that can be traded for $5 a slice. Personally, I think this is a brilliant ploy to bring in retail investors who perhaps could not afford to invest otherwise. This is definitely something new in the markets, and I believe it has attracted and generated a particular brand of retail speculative fever.

By enabling so many small retail investors who might have previously been shut out of the market by not even having enough money to buy one share of a big-stock leader, you get this convergence phenomenon where a mass of retail money in the form of millions of small investors appears to converge simultaneously and instantaneously on the latest hot goodie, to borrow a favorite phrase of Bill O’Neil’s. It is their buying power en masse that makes them a force to contend with, and when enough of them pile in at the same time it creates an aggregate force that can get things moving higher, and fast. Think of it this way - one single krill doesn't eat a lot of plankton all by itself, but several millions of krill in a large school can eat a lot of plankton, and fast.

Back in 1999-2000 everyone was quitting their job to become a day-trader, while today everyone has been forced to "quit" their job by working from home, courtesy of "Covid-1984," and thereby being able to focus their attention on trading - the hottest new way to make some extra money, made even more attractive with flashy app-based trading platforms like Robinhood. In 1999-2000 retail speculative fever eventually set the anecdotal stage for a massacre, as will the current speculative retail fever that exists in this market. Rest assured, I’m not knocking it, because it gives us some incredible profit opportunities as long as we maintain perspective and understand that when it ends it will likely end very badly. And in fact, the long investment opportunity of a lifetime could quickly transpose into the short-selling investment opportunity of a lifetime. The post DotCom bear market of 2000-2003 was an equally massive opportunity on the short side for those who were smart enough to stop pulling the Buy lever like a rat trained to expect a treat each time. Understanding the structural drivers of any market bull phase is critical in understanding the conditions that might lead to its final reversal.

Most importantly, if things are working well for you in 2020, do not get carried away with your perceived investment prowess. As traders and investors we are just like surfers. We don’t create the wave, we just ride it, and our skill exists in recognizing the wave when it comes, catching the wave, and then getting off before it crashes on the rocky shore. Many of the professional investors that I and my staff advised at William O'Neil + Co., Inc. back in early 2000 failed to recognize the wave that was the great DotCom bull market bubble. When it finally popped, they couldn't understand why their brilliant and magical investment "powers" suddenly just weren't getting the same results and instant gratification- they simply didn't know when to stop buying. In the process, I saw a lot of freshly-minted hedge fund managers crash and burn in the latter part of 2000 and go out of business, like the surfer who stays on a wave too long.

When you begin to think that it is your brilliance that creates the wave, instead of understanding the mechanics that produce the structure and force of a big wave, that is the first step towards your own demise. Meanwhile, ride the wave for all that it is worth, but respect the source of that wave. In essence, as Bill O’Neil use to say, "Don’t go off getting all full of yourself!