Steve’s GQ Swagger

Here’s a warning slap for every Average Joe and Josie out there. It’s about my GQ.

The GQ, or “Grill Quotient,” is a swag guesstimate of how the amount of market talk – positive or negative – from the guys at my regular breakfast place reflects how close we are to a sell-off. The more aggressive the talk gets, the higher the GQ goes and the closer we are to the top.

No, it is not quantifiable, but it is always right.

Just the other day, one of the better-read and more experienced money guys came up to me and said, “Goldman Sachs says next year will be great for stocks. I’m thinking about getting aggressive with my cash.”

Holy cow! This is as close to an early indicator of a top as it gets. Talk about irrational exuberance in embryo form.

After nine years of the market moving almost straight up, now he decides to get aggressive?! Now?!

For my money, this is an early entry point for the last stage of the bull market. The little guy has begun to realize he not only missed the boat, but now he thinks is the time to make bold moves to catch up.

When the little guy starts thinking this way, it’s the beginning of the end.

I harp all the time about this kind of small investor behavior and the disastrous results it will produce. But never have I seen a clearer indication of a near-term top as this conversation.

Another grill buddy stops at my table every morning with his most recent “can’t lose” stock idea. He is actually a pretty good judge of the market and is at least bottom-fishing – buying at or near the 52-week low.

But after the run we have had in this market, stocks are at 52-week lows for good reasons… and none of the reasons are positive. In a big enough sell-off, stocks can and have dropped well below their 52-week lows. It is no guarantee of upward price movement.

Cheap is not necessarily a bargain or value.

Oh, and my advice to my buddy who wants to get aggressive now? It came from a Member many years ago at an Oxford Club event. Actually, he was a heckler, but his words still ring true for the average investor.

“Do your due diligence.” Make sure you cover all the fundamentals and technicals, and then do the exact opposite of what your gut is telling you.

Believe me! After 30-plus years of studying this market and watching the small investors get creamed year after year, the time to get aggressive has passed.

Rather than throwing your cash to the wind, spend the time evaluating your risk tolerance and adjusting your holdings for the long haul. That is the only way I have ever found to make money.

Good investing,

Steve