I shared an article back in August 2017 where I talked about my Average Joe indicator. I explained how in the past I have taken note when people that don’t usually talk about investing start talking about investing. It could be the overall market or it could be talking about a particular area of investing. In past cases, the indicator came in to play with internet stocks in 1999, silver investments in 2011, and pot stocks in 2017. I also mentioned a friend talking about the overall market in late 2017.
Today, we may be looking at a good sign from the Average Joe indicator. We may be seeing fear reach a peak in the near future and that would mean a halt to the massive selloff we have seen in the past week. Sure we may see more selling as more is learned about the coronavirus, but the panic selling that has taken the S&P down over 10% from last week’s high could be coming to an end.
The reason I say this comes from two status updates I read on Facebook last night. I won’t mention names because these are friends, but I will share what they posted. The first person is an old friend from high school that to my knowledge has never posted anything about the stock market before.
Do yourselves a favor…DO NOT look at your retirement funds or investments! It’s depressing! Right now, retirement got pushed back.
This person is self-employed and works in the medical field.
The second person is an old coaching colleague that works in the transportation industry. Last night he posted this status update.
Just transferred my 401K to bonds. The last 3 years have been a good ride. Will sit on sidelines for a year. Not an alarmist, just a realist.
Hopefully, neither of these friends will read this article as I’m sure they would recognize their own posts and I don’t want to make them angry.
That being said, when we see or hear people talking about the market in such a manner, it is probably a sign that whatever is happening to garner this attention is getting ready to change. When people are screaming about their market gains and how well they are doing, it’s probably a bad sign since they aren’t generally talking about making money on bearish trades.
In the article back in ’17, I mention a friend that was raving about the gains he had been making in the market. As I was riding the exercise bike this morning and was putting this article together in my head, I thought about this particular friend. I will call him Joe in honor of the Average Joe Indicator. I thought about Joe while riding and I wondered if I would get a call from him today.
Sure enough, he called this morning as I was writing this article. Joe only calls me when he is worried about the market and he always wants to know what he should do. He doesn’t call when the market is rocketing higher, only when he is panicking. I didn’t take the call this morning because I wanted to finish this article before calling him back, but I know why he is calling.
Joe’s a nice guy and I hate to write about him this way, but he is the epitome of an emotional investor. When Iran launched missiles at the U.S. base in Iraq and oil spiked higher that night, Joe was telling everyone on Facebook to buy Marathon Oil (NYSE: MRO). The stock was trading between $13.00 and $13.50 at the time. This morning the stock dropped below $8.00.
If I had to guess, Joe is calling me to ask what he should do with his Marathon stock. This happens from time to time and I honestly don’t know if Joe listens to my advice or not. He never calls back to say, “Hey, thanks for the help. You were right and saved me money.”
The advice I give Joe is pretty much the same every time. Don’t panic. I also always ask him, “why didn’t you have a plan when you bought the stock?” If I was on the phone with you, I would give you the same advice and I would ask you the same question.
I’m not suggesting that you should jump back into the market with every bit of cash you may have on the sidelines and I am not saying that we hit the low this morning. But based on what I am seeing and hearing, I think we could see a bounce in the next few days. From there it will depend on what news we get about the coronavirus and if we get more earnings warnings from companies.
Regardless of what we find out, investors shouldn’t panic and move their entire portfolio to cash or bonds. They also shouldn’t move all of their cash to stocks. I don’t understand why so many investors invest in absolutes—all in on stocks or all out on stocks.