This is an old adage that still resonates no matter the economic, political or market environments. So what does it mean and why has it stood the test of time?
Well, in terms of markets, for every buyer there must be a seller (generally speaking and, yes, I know short sellers are another type of player), right? If there are more sellers than buyers then prices fall. On the flip side, if there are more buyers than sellers of a stock, or stocks in general, then prices will rise, right?
In extreme market environments, such as the late 90’s Tech Bubble, folks bid up the stock prices of various ‘internet’ companies, and tech stocks in general, to outlandish levels. This occurred because there were multiples of buyers vs. sellers. You might be thinking, “Yes, I know this much Captain Obvious!”.
Likewise, during the ’07 – ’09 mortgage meltdown market, folks practically gave up on stocks all together! Not only were they dumping all their stocks, they were selling them at historically low prices, in hindsight at least. More on Fear and Greed later.
These are examples of extreme market environments, both bullish and bearish. However, what about markets that aren’t so extreme, negative or positive? Maybe an environment where the markets have been good for “so long” (over 10 years, right?) that folks are worried and saying “This can’t keep going higher any longer. It’s going to fall or crash soon” (Worry #1)
Or, maybe the political environment is so toxic that it’s going to wreck our economy and markets. (Worry #2)
Or, maybe the economic environment seems so bleak (trade war with China?) that the economy will suffer and the markets, in turn, will fall or crash. (Worry #3)
And on and on….
So, now back to our “buyers and sellers” premise from above. Right now, in my opinion as well as others, investors are generally pessimistic about the economy, the stock market, the political environment, etc… A lot of folks seem worried about everything when it comes to investing. People want to “hold cash” for the pending market correction or crash. They’re waiting to buy. They have their cash ready (read this WSJ article) to pounce on the opportunity of low stock prices!
But what if the markets creep higher while lots of folks keep waiting!? FOMO creeps in and eventually these worried investors reluctantly buy back into the market because it keeps going higher. Their correction or crash hasn’t occurred and they FOMO.
It’s when things aren’t so obviously bad or obviously good but investors still worry and they wait… and wait…. and wait…. until one day they can’t wait anymore. They buy back into a market that keeps creeping higher, with their bargain hunting cash. One by one they give up, fold their hands, reluctantly and begrudgingly, they buy back into the this “terrible” market!
So there it is. Climbing the Wall of Worry! It’s one of the factors in play right now, at least in my humble opinion.
Important disclaimer: I’m not advocating or implying that the market will keep going higher or saying anyone should invest based upon this theory or premise. Every minute of everyday, there are millions, actually billions, of investors making buy/sell decisions. These collective daily decisions ultimately determine whether markets keep going higher or start to turn lower. So make sure to base your investment strategy and decisions upon your personal goals and financial situation.
Until next time,