This Time it’s Different?

The four most dangerous words in investing according to the late Sir John Templeton whose mutual fund averaged a 15% annualized return for 38 years:   

“This Time it’s Different”

My published research findings to date conclude that the S&P 500 is at an historic high based on the index’s 150 years of empirical data.  Read my DNA Discovery Confirms 2021 Perilous Peak & Secular Bull High for S&P 500, January 29, 2021, article.   View February 2021 “S&P 500 at 4th Perilous Peak since 1881” video.

The table below contains the five periods which represented the S&P 500’s top 10 P/S (price/sales) ratios from 2000 to 2021.  Each of the five periods had at least one BSA (Bullish Sentiment Anomaly).  Two of the periods occurred in 2018 and two of them, 2000 and the current 2021 qualified as Perilous Peaks. The P/S ratio is a more stable valuation metric than the P/E ratio especially for an index.   Losses reported by an index’s members can spike its P/E. 

The table depicts that the S&P 500 had experienced a double-digit percentage correction within 25 days after reaching a record high for each of the periods.  The 2000 period, which qualified as a Perilous Peak, had three of the 10 highest P/S ratios and six BSAs.  The 2000 high was also the high for the 1982-2000 secular bull which was followed by a decline of 45% at the March 2009, bottom for the secular bear.  

The two periods in 2018 had the 9th and 10th highest P/S ratios and a combined eight BSAs.   The S&P 500 for 2018 as depicted in the chart below, experienced a cyclical bear market with the result being a year over year decline of 6.3%.   2018 was the index’s first yearly decline since the secular bull began in 2009.

My newest research findings in the above table provide the rationale for why the S&P 500’s 35.4% correction in 2020 proved to be a dip buying opportunity instead of the start of the next secular bear market.  Unlike the 2000, 2018 and 2021 periods, the S&P 500 in 2020 had only one BSA.  The level of greed for 2020 as measured by a single BSA indicated that the intensity of greed when the S&P 500 reached its February 2020 record high was low when compared to 2000, 2018 & 2021 which each had a minimum of six BSAs.  2020’s P/S ratio was the 5th highest for the 21 years from 2000 through 2021.  Additionally, 2021’s P/S ratio was not high enough to meet the Perilous Peak qualifications.

The 6:59 seconds “Greed Accelerator” video below is a clip from the “S&P 500 at 4th Perilous Peak since 1881” Money Show presentation.  Both videos are must views for the discerning investor.  The clip illustrates how the stock market psychologically conditions conservative investors to become greed monsters.  

The findings from my empirical research which are explained in the video are a breakthrough for the science of investor psychology or behavior.  The video illustrates that every Perilous Peak since the S&P 500’s inception in 1871 has been preceded by a “greed accelerator”.

My predictions below are based on the findings from research which was conducted after the videos were produced: 

  • The 2020 crash and rapid recovery will go down in history as the “grandaddy of all greed accelerators”.   
  • The S&P 500’s correcting by a minimum of 10% from its 2021 record high will be that signal that the pre-correction high was the top for the secular bull market which began in 2009.  A secular bear with a minimum 8-year duration and a decline of 45% will replace the secular bull.   To become knowledgeable about secular bears and what to invest in when they occur view March 2021, AlphaTack.com presentation “Why it’s Important to Know the Difference Between a Cyclical and a Secular Bear Market” video.  The 18:06 seconds video can be viewed in its entirety and is also available via a 7 videos series at AlphaTack.com.

For strategies to grow assets against wind go to www.alphatack.com.