Baupost Group’s Seth Klarman laid out his concerns with the market in a recent client letter…
‘Risk, Klarman wrote, is the most important consideration when investing, and investors are being too trusting. When share prices are low, as they were in the fall of 2008 into early 2009, actual risk is usually quite muted while perception of risk is very high. By contrast, when securities prices are high, as they are today, the perception of risk is muted, but the risks to investors are quite elevated.’
The problem with overvaluation and investor exuberance is they are clear hallmarks of historical bull market peaks. This is particularly the case when there is a central asset, or asset class, that investors are piling headlong into without regard to the consequences. As I addressed recently:
‘When it comes to investing, ALL investors, individual and professionals, are subject to making ‘stupid’ decisions. As Idiscussed recently: At each major market peak throughout history, there has always been something that became ‘the’ subject of speculative investment. Rather it was railroads, real estate, emerging markets, technology stocks or tulip bulbs, the end result was always the same as the rush to get into those markets also led to the rush to get out. Today, the rush to buy ‘ETF’s’ has clearly taken that mantle, as I discussed last week, and as shown in the chart below.’
This post was published at Zero Hedge on May 29, 2017.