Warning for investors: The devil may be coming for you

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various editions of Contramoney. So, we will avoid anything more than a passing mention here. What I want to use our time today is on observations of what tends to go wrong in heady bull markets like the one we are probably witnessing in specific segments of the stock markets.

For instance, small caps. Let me begin by telling you what I am observing in the general conversations happening around us. Yes, what is proven and rock-solid has been completely turned on its head.

While this world makes little sense to old-timers, it makes a lot of sense from another perspective. We see a version of it play out every few years. Perhaps history is repeating itself all over again.

This brings me to the “devil" impact of this bull market on investors, for lack of a better description! It’s three-fold. First, rising stock prices have automatically increased the exposure of households to the stock market. Second, the allocation to the stock markets is growing incrementally, further boosting the total allocation.

Third, a lot of this incremental money is going into stocks that are pricey and/or in the small and micro cap categories. Now, by themselves, each of these can play out well for investors if they have well-planned strategies and select stocks extremely carefully. However, since we are speaking in general terms, it’s not wrong to say that for most retail investors, this is not likely to be the case.

So when this phase of euphoria passes, many retail investors could once again be left nursing significant losses. Perhaps this time it will be different. Meanwhile, here’s a simple framework to help you avoid getting carried away in a bull market.