Personal Wealth Management / Expert Commentary

Are We Seeing Investor Euphoria? If So, What’s Next for Markets? Ken Fisher Answers

Some investors are worried that recent positive investor sentiment has crossed over into euphoric territory—potentially signaling a bear market on the horizon. In his latest video, Fisher Investments’ founder and Co-Chief Investment Officer Ken Fisher explains ways to spot signals of true investor euphoria.

Transcript

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Title screen appears, “Are We Seeing Investor Euphoria?

If So, What’s Next for Markets?

Ken Fisher Answers”

A man appears on the screen wearing a white shirt, sitting in a decorated room with a map of Texas.

A banner identifies him as Ken Fisher, Executive Chairman and Co-Chief Investment Officer, Fisher Investments.

Ken Fisher is talking while doing gestures with his hands, explaining things...

Audio

Ken Fisher: There's been a lot of ink spilled lately on the notion that markets are getting euphoric, maybe are euphoric. Isn't that scary? Isn't that a sign of the end?

Ken Fisher: Forgetting about the fact that usually once you hit Euphoria, it runs on for a fairly long period of time before you hit the end. A lot of people haven't been through multiple cycles of Euphoria and don't really know what Euphoria is like, so I'm going to speak a little bit to that.

What is it that Euphoria looks like?

Ken Fisher: The fact is, that Euphoria is a world where you justify things under, it's going to be really good for a really long-time basis that otherwise wouldn't be justifiable, and that we're in a different world and it's because of this or that, and that changes everything. So, with that usually comes abundant initial public offerings, IPOs. And not just abundant ones, but abundant, very low-quality ones of businesses that are purely speculative.

Ken Fisher: Also, big companies buying other companies funded purely by equity, which then creates equity dilution through the creation of new shares to pay for the bid up.

This is a sign that those managements are really optimistic.

Ken Fisher: Remember, the seller always knows more about the thing than the buyer does.

Always? Maybe not, almost always.

The reality of Euphoria is that it includes people buying stocks commonly on projections of earnings two and three years out.

Ken Fisher: No one's really able to project earnings per share 2 and 3 years out.

So, the notion that you're buying stock based on that in and of itself, highly speculative and considered foolish most of the time.

Ken Fisher: But in a euphoric world that isn't considered foolish, the euphoric world has this part that believes it's different now because of this feature or that feature.

Ken Fisher: It currently there's a lot of people that believe that because of what happened that we

all know about happened tied to COVID and the lockdowns shut down the economy.

And as the ramp up in that return of opening up the economy has allowed for companies to make full or partial return to the way they were before, that the ones that haven't been able to fully return to the way they were before, will benefit from the government spending of the COVID relief bill.

Ken Fisher: Now, the $1.9 trillion bill that's been much publicized, and that that will lead to earnings growth that will go on, likely followed by and meant the administration offering an infrastructure bill that will provide more growth.

And these kinds of things, particularly ones predicated on government action ah, that will generate growth several years out, are exactly the kind of thing that pop up as you begin to get into Euphoria.

Ken Fisher: When you get fully into Euphoria, you get even crazier ones.

And that, for example, that people who remember it from 21, 22 years ago recall with the internet boom and bust of the late 90s into 2000, 2001,

as people justifying everything, because, and the saying at the time was: It's the internet, stupid.

Ken Fisher: So, the reality is these kinds of things that look to it'll be great because it's going to be great without a justification for what makes it truly different to normal times, and why you can break all the rules because of this greatness that we will now have for a really long time, maybe forever. That's what euphoria looks like.

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Ken Fisher finished talking, and a

disclaimer screen appeared, it says “this commentary constitutes the general views of Fisher Investments, and should not be regarded as personalized investment or tax advice or as a representation of their performance or that of their clients. No assurances are made that they will continue to hold these views, which may change at any time based on new information, analysis or reconsideration. In addition, no assurances are made regarding the accuracy of any forecast made herein. Not all past forecasts have been, nor future forecasts will be, as accurate as any contained herein.

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