A Sign Of Market High?

A few weeks ago, I was taking a private hire vehicle home when the driver struck a conversation with me, which (somehow) drifted to the topic of investing and trading, and I was asked this question, “What do you think of (insert asset/security name)?”.

Picture generated by Meta AI

He claimed that he knew nuts about the workings of the market, and he picked this asset/security up from a recent passenger who did day trading on it, and apparently became quite successful. While I enjoy discussions like these, but taking into his investing/trading background (which I gave him the benefit of doubt of his stated zero knowledge), I treaded carefully the dialogue and advised him to read up more, since the asset/security he brought up is volatile.

For those who are aware, and/or had seen a couple of Hong Kong TV series on the stock markets, whenever anyone who has had no investing/trading experience suddenly engage with you on the markets, it is a sign of exuberance and hubris. The reason for this occurrence is simple: when people make money from the markets, the beneficiaries tend to talk about it, and if there are a lot of them around, the network effect gets bigger. Adding into the effects generated by news and social media, the outreach becomes greater to the point that those who were initially not interested would become so.

So, does this imply that the bubble is about to burst? My “think fast” instincts might tell me it is going to happen soon, and I needed to do some extreme hedging actions on my portfolio (e.g., sell all and run for the hills). My “think slow” brain, however, may be telling me to sit back and analyse on the asset/security in question, e.g., whether its bull case is justified. A balance is needed between the two, but I admit it is difficult to keep it this way.

Our remedy is simple: if we are vested in this asset/security and has future potential, we would just hold or rebalance when it goes up, or buy more when it is down. Following diversification and its related factors like correlation, this holding would not be the only thing in our portfolio, but only form part of it.

Therefore, whenever someone brings up a market tip in the car, just listen, evaluate and enjoy the ride.