Having the courage of your convictions

Captain Hindsight is a pointless superhero made up by the makers of South Park, Matt Stone and Trey Parker.

Captain Hindsight’s superpower is his superhuman level of hindsight.

In a storyline intentionally stolen from Spiderman, Captain Hindsight obtains his superpowers after an experiment went wrong.

While trying to improve his hindsight, news reporter Jack Brolin was bitten by a radioactive spider and his hindsight was blasted to superhuman levels.

In the episodes he features, he turns up at emergency situations, and instead of helping, he simply tells everyone what they should have done to prevent it.

I always liked this character because it satirises what so many people and organisations – the news media in particular – do in order to “help”.

It’s easy for people to come across as credible and intelligent by analysing an event or emergency after it has taken place.

And it’s a lot easier to seem intelligent by shooting an idea down than by admitting it might be good. Especially if you’re too cowardly to put out any ideas of your own.

How to be wrong while still being right

No one wants to be wrong. But if you’re predicting something negative and you’re wrong, you can still come off as credible.

Take, for example, someone telling you the markets are going to crash next month.

They tell you to prepare and get your investments in order. And you do.

Then the crash doesn’t come.

Are you angry at them, or are you more just relieved that the crash didn’t happen?

Or, do you still think the crash is coming, but they were just off by a few weeks or months?

In my experience, most people are either relieved or they think the prediction was just off by a few months. Rarely do people get angry when a negative forecast doesn’t come true.

And if it does come true… wow. You are forever in their debt.

This makes it a lot easier for commentators to make negative predictions than positive ones.

And I guess, that’s why when we are in a situation like we are now in the markets, you get a lot of people predicting the inevitable crash.

I mean, the crash is inevitable. If history has taught us anything it’s that stocks can’t go up and up forever. There will be a correction, it’s just a matter of when.

What I wasn’t aware of until recently, however, is how these crashes tend to happen.

The surprising way bull markets end

It’s an idea that Eoin Treacy has been putting a lot of thought into recently. If you’re a subscriber to Frontier Tech Investor, you’ll be familiar with Eoin’s “melt-up” discovery.

But to sum it up in a sentence or two. Almost every bull run in history has ended in a sudden and violent run-up in prices.

This dramatic run is short lived, but during it, prices can reach astronomical prices before they crash back down.

It happened before the 1929 crash. It happened before the Japanese stockmarket crash in the 90s. It happened before the dotcom crash. It even happened with bitcoin this time last year.

I thought it was interesting, as the financial news has recently been filled with crash predictions. But none of these predictions reference the “melt-up” that occurs before it.

So, I thought it would be interesting to see what the news was saying about tech stocks before the last melt-up in 1999. Were they echoing what we are hearing across the financial news now?

Yes, as it turns out.

Thanks to Google’s search-by-date feature, I was able to find some eye-opening articles from just before the 1999 melt-up.

From the Independent in August 1999:

The candidate for bubble-pricking is the surge in Internet and other hi-tech shares, mainly in the US, that has happened over the last 18 months. The sharp falls in the share price of these hi-tech companies – and the string of stories of distress among the “day traders” in these stocks – hold out the possibility that the Internet bubble has popped.

Bear in mind that article was written in August 1999. I have circled when that was on the Nasdaq composite chart from that time below.

Source: Yahoo! Finance

And in April 1999, from an article on The Street:

Amazon.com is by far the market’s most overvalued stock, according to a survey of eight leading Wall Street strategists.

But perhaps the best ones come from two now-disgraced investment houses. Captain Hindsight would have been very proud of calling out these two. Both feature in the same Forbes article from January 1999:

The caution flag is out. Bernard Madoff is head of the marketmaking firm Madoff & Co. and also chairman of the trading committee for the Securities Industry Association. He’s urging on-line brokers to tell their clients that highly volatile stocks like Amazon and Yahoo are likely to face a severe lack of liquidity during a downturn or a prick in the Internet stock bubble. “The problem is, there is no buffer between the customer and his own tools of self-destruction,” says Madoff.

Merrill Lynch’s vice chairman, John (Launny) Steffens, has gone as far as to order his brokers to urge clients to cancel unsolicited market orders to buy brand-new Internet stocks. So far Merrill has been able to get its clients to cancel hundreds of thousands of share orders in the hot new issues of The Globe.com, Ticketmaster/CitySearch, Ubid and Xoom.com.

If you recall, Bernie Madoff carried out the biggest financial crime in history. “He defrauded his clients of almost $65 billion. On June 29, 2009, he was sentenced to 150 years in prison with restitution of $170 billion.

And Merrill Lynch was instrumental in the subprime mortgage scandal, credited with triggering the 2008 financial crisis.

But, like I said, with hindsight it is easy to say what people should have done.

Here is a man staking his reputation on a strong idea

What is not easy, is making a prediction before something happens – especially a positive one.

That’s why Eoin’s melt-up idea grabbed my attention.

Here is someone that’s not taking the easy option. He’s found something he believes is important and he is doing his best to get that idea out there so investors can make the most of it.

He’s putting his reputation on the line and not merely just joining in the chorus of doomsaying. And on top of that, his idea could potentially make you a great deal of money.

Until next time,

Harry Hamburg
Editor, Exponential Investor

Category: Cryptocurrency

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