I was sitting on the train coming into work this morning and there were these two mid-forty year guys having a chat about money. Usually I try to tune people out on the train, but this one I couldn’t. They were talking about investing.
Now, I understand this may not be all that fascinating. However, I assure you that it was. What they were talking about was investing in junior oil and gas plays that they were hoping would make them rich. I got the impression that one guy worked at one of the telecom companies in Calgary (based on the logo on his bag – an assumption but probably a safe one). He said that he just put about 25% of his portfolio into a bunch of juniors that a friend of his, who was a broker, suggested at a party he was at a couple of weeks ago. I could not believe what I was hearing.
Here is a guy, in the telecom industry, putting 25% of his portfolio into a bunch of small companies that may or may not even be around in a couple of years. If that is not the result of an superheated market, especially a superheated resource market, then I am not sure what is. I am willing to bet that he has no idea what the companies he bought do, or how they make money. I just hope he keeps checking in with his party friend so that he can tell him when to get out.
The markets have been doing pretty well of late and there seems to be a lot of confidence in the market. What seems to happen at times like this is people with no business investing in risky juniors or other small-caps jump in. Everyone thinks they know everything and start to make stupid decisions. They will learn.
Don’t get me wrong, I am not saying that I know everything or that I am a good investor. All I am saying is that in times like these investors need to be sure they are not reacting on emotion, buying into a market that appears to only be going up in the hopes that they will be rich in a couple of months or years. It tends not to happen that way. My investing mantra can be more subtly described as – slow and steady wins the race.
I am also finding that everyone I know is talking about investing in commoditiy plays (or at least talking about it). US large caps these days have about the same popularity as toxic waste. If I mention that many of these names have doubled earnings in five years and the stocks have barely budge, I get a predictable, “But the dollar could reach par!”. I love it! I am loading up on US large caps.
It is really nice and convenient, even, when the peanut gallery leaps in and tells you what *not* to buy.
Yes – good point Capitalist. What goes up must come down!! Out of interest, what US stocks are you buying – if you don’t mind me asking?
Thanks for your post. Now I’m really worried. That is a sign of a market topping. I bought a junior company in oil in January, and I got 60% YTD return on that. It was an incredible run. The more I look around, the more I think that an intermediate top in commodity market is coming really soon. I have been in this market for the past five years, and I have never been more worried than now. Yes, the ride and return was great, but the higher it goes, the more worried I get.