“The Case for Losing Money” in 2021
This investment behavior is ringing the “alarm bells”
by Bob Stokes
Updated: July 13, 2021
Who would want to invest in a business which is losing money? Seems a bit strange, but apparently, a lot of people would.
Indeed, that investment behavior goes at least back to the technology mania days of 2000, a year of a historical financial top.
In a February 2000 Special Report, our Elliott Wave Financial Forecast said:
It's a running joke among Net entrepreneurs. Venture capitalists won't fund you unless you can prove your company will lose $450 million in the first six months otherwise they figure you're not ambitious enough.
This is mentioned because it's relevant here in 2021.
Look at these two headlines:
- Record Stock Sales From Money-Losing Firms Ring the Alarm Bells (Bloomberg, June 27)
- Money-losing companies are selling a record amount of stock ... (CNBC, July 2)
Our recently published July Elliott Wave Financial Forecast said:
In May, the Financial Forecast talked about speculators' perverse attraction to money-losing companies... Another example of this risk-embracing behavior [is] a record net loss at companies raising money in secondary stock offerings. The prior record, and the only other time when there was a net negative number over the prior 12 months was in March 2000, the exact month of that decade's major top in the NASDAQ. The dot.com crash followed.
The current rush into money-losing companies doesn't necessarily mean that another "crash" will occur today or tomorrow, so to speak.
However, financial history does show that high-risk investment behavior is a characteristic of an extended bull market.
The best way to get a precise handle on the stock market is to employ the Elliott wave model, which has specific rules and guidelines for market analysis and forecasting.
Learn what the Wave Principle is suggesting is next for the price paths of the main U.S. stock indexes by following the link below.
A "risk-embracing behavior" that was pronounced in the exact month of the NASDAQ's historic top in 2000 is now flashing a warning sign in 2021. Here are the details.
"Human Nature Does Not Change, Nor Does Its Pattern"
The quote above comes from Frost & Prechter's Wall Street classic, Elliott Wave Principle.
Think about the truth of the quote: during every market cycle, some investors proclaim that "it's different this time."
Yet human nature drives price trends, so the patterns of investor psychology never change. That means financial markets are predictable.
Learn what our analysts are telling subscribers about the next big moves in key financial markets like stocks, bonds, gold, silver, the U.S. dollar and more.
Follow the link below to gain instant access to our flagship investor package.
Global fund managers have ramped up their equity allocation in a major region of the world that had formerly been a laggard. Those who are considering jumping on the bandwagon may want to review this chart first.
TIPS, Treasury Inflation-Protected Securities, have an ETF named TIP. It just hit a new 52-week high after rising strongly since the start of the pandemic alongside the rising inflation fears. What can we learn about inflation's trajectory from here by looking at TIP's Elliott wave pattern? Our Interest Rates Pro Service editor explains.
You may have heard us say Elliott wave chart patterns are fractal -- meaning, smaller patterns make up larger ones. To understand how powerful this can be in forecasting, watch our Currency Pro Service editor walk you through the 2-week and daily charts of the Japanese yen, a big forex market.