SIGNS OF MARKET TOPS.

Do you ignore radio or TV commercials? If you do, I can't say I blame you but there are things you can learn by paying attention to what is being touted in the financial markets. For example, a few years ago there was a commercial by a well-known talk radio host telling you it was time to get started in rental real estate. A developer was offering you a chance to own a brand new $330,000 duplex with a $16,500 down payment. The commercial promised a positive cash flow from the beginning and stated that if you had made a similar investment 10 years ago, you would have a return of 90+% per year. Although these facts were mostly true, the developer was recently indicted on a number of counts, not the least of which was securities fraud. The developer took earnest money from over 1000 borrowers and ended up delivering only 40 finished units. This was a bad deal from the beginning but that is not my point. The more ads like this one air, the more likely it is that we are nearing a market top in that investment sector. In a normal market, no one would believe these "too good to be true" promises. Another example is the plethora of ads touting gold as an investment vehicle. The ads state that if you had invested in gold three years ago, you would have made a 20% return. Again this is true but it fails to mention that if you had bought gold 25 years ago, your return would be negative. I believe gold has a place in some portfolios but these ads lead me to believe that the easy money has already been made for this cycle and we are very near a market top. There are other signs of market tops which we will discuss in future posts. In the meantime, if you would like to develop a clearer picture of your financial situation send me an e-mail.