The End of a Bull Market Doesn't Feel Like This
"Bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria."
- Sir John Templeton
The date was August 27, 1997.
I found myself flying in a rusty old Soviet transport helicopter over Lake Issyk-Kul in Central Asia.
I was petrified. (We learned earlier that a similar helicopter had crashed the previous week.)
There were no passenger seats on board. The pilot told me to sit on an old kitchen chair next to a fuel tank in the back.
So how did I end up there?
I was on the first-ever investor trip to the former Soviet republic of Kyrgyzstan.
Upon our arrival, we met with the great and the good of Kyrgyzstan, including the head of the Kyrgyz central bank... and the 20-something head of the Kyrgyzstan stock exchange.
Our group - which included future billionaire Jim Mellon - debated whether to risk taking a return trip on that same helicopter... until we learned that a bus would take two full days, winding through treacherous mountain passages.
Upon arriving back in Almaty, Kazakhstan, we learned Princess Diana had died in a car crash the previous night.
Less than two months later, the MSCI Emerging Markets Index peaked.
More than 20 years have passed since that terrifying helicopter ride. And emerging markets have yet to recover the highs they last saw in October 1997.
So what does this story have to do with the state of financial markets today?
Surprisingly, I'm not recommending that you pile into emerging markets stocks.
The lesson I want you to draw is much more general.
It's a lesson that applies to any market... and to any asset class.
And it's a lesson that could both make and save you a fortune.
Let me explain...
Investors focus on a wide range of measures to gauge the current state of the stock market.
Financial analysts generate elaborate financial models. Technical analysts interpret charts and complex indicators. Quant investors design intricate algorithms.
Each of these approaches is legitimate in its own right.
But each ignores the elephant in the room: market sentiment.
Maybe that's because market sentiment is hard to quantify, making it the red-headed stepchild of market analysis.
But in the real world, market sentiment often matters more than a market's fundamentals.
So what does market sentiment tell you about the U.S. stock market today?
I've written previously about how Yale professor Robert Shiller believes the U.S. stock market is among the most overvalued on the planet.
Even after the recent pullback, the U.S. stock market still trades at a cyclically adjusted price-to-earnings (CAPE) ratio of 32. That's about twice its long-term average.
And as Chief Investment Strategist Alexander Green recently pointed out, "History's best stock market indicator is flashing red right now."
So does this mean you should dump your U.S. stocks and run for cover?
No... and understanding market sentiment can tell you why.
Today, most investors know U.S. stock market valuations are high.
The good news is they are nervous about it.
And bull markets, as Sir John Templeton pointed out, "die on euphoria."
So unlike emerging markets in 1997...
Or the dot-com bubble in 1999...
Or the real estate boom in 2007...
When I look at the U.S. stock market today, I see no signs of euphoria... no siren calls of, "This time it's different."
(The exception being the cryptocurrency market, which marches to the tune of its own drum... and for which I have a tin ear.)
That's why I believe the bull market in stocks still has a little way to go.
Yes, you will have to adjust your portfolio in the years to come.
But we're not there yet. You can still make money in U.S. stocks.
So stop worrying about the stock market collapsing tomorrow...
And worry only when you begin to believe it can go up forever.