Dear fellow investors,
Virtual reality is not reality! We have just come through an era where virtual reality controlled stocks and bonds. For this reason, a series of unreal factors drove what we call the stock market metaverse.
What are the main realities of common stocks?
- The stock market is designed to move money from impatient people to patient people.
- Most people who engage in the stock market suffer stock market failure. Competitive endeavors are not created for everyone to win.
- Financial euphoria episodes are normal. These episodes destroy the faith in common stocks of a generation of investors when they break.
- Man cannot live on phishing among stocks with high price to earnings (P/E) and high price to sales (P/S) ratios.
- Interest rates serve as a gravitational pull in stocks. Higher rates drive lower P/E ratios and lower rates drive higher P/E ratios.
The years 2015-2020 were a stock market metaverse because it was virtual reality. In virtual reality, here is what the stock market did:
- The stock market moved money to impatient people.
- Most people who engaged in the stock market succeeded.
- Financial euphoria was perpetuated and prolonged by the massive liquidity created by the U.S. government and other foreign governments.
- Aggressive investors were phishing for high P/E and high P/S stocks, and the more risk people took, the better they did.
- Interest rates were near zero and lured investors into over-capitalizing stocks and bonds. This was especially true of futuristic/tech stocks.