Irrational exuberance is back, and these are the worst offenders

It was way back in 1996 that then Fed Chairman Alan Greenspan first used the term “irrational exuberance” to describe stock market prices, and whether he was right or wrong to use the term is one of history’s oft argued irrelevancies. What can’t be argued is that major indices, particularly the NASDAQ, remained on a sharp, upward trajectory for three and a half years after the words were said. Many fortunes were made during that time, and some of today’s giants, namely Google (GOOGL) and (AMZN) first rose to prominence, while the biggest giant of all, Apple (AAPL), rose from wreckage into the re-imagined company of today.

Having lived through the era, trading all the while, I recall that most of us knew things were out of whack, but we were essentially powerless to do anything about it. Borrowing costs, particularly of technology shares, were so high that shorting the market was frequently not feasible, and, of course, it was always extremely dangerous. The corollary of irrational exuberance is this quote, of uncertain origin: “The market can remain irrational longer than you can remain solvent.”

Fortunately, today’s bull market, while perhaps as irrational, is nowhere near as exuberant as the bull market of the late 1990s. If you aren’t comfortable in today’s hottest tech stocks (and I mean to point out a few in which you shouldn’t be) you can invest in other sectors that offer reasonable and reasonably secure returns. You can even short-sell, if short selling appeals to you, though in most cases, you would be better served by buying naked put options.

That said, remember to treat these ideas as just that, ideas, and do your own research before making any investment decision.

Julian Close

Julian Close

Julian Close became a stockbroker in 1995. In his 20 years of market experience, he has seen all market conditions and written about every aspect of investing. Julian has also written extensively on corporate best practices and even written reports for the United Nations. He graduated from Davidson College in 1993 and received a Master of Arts in Teaching from Mary Baldwin College in 2011. You can see closing trades for all Julian's long and short positions and track his long term performance via twitter: @JulianClose_MIC.

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