Today's investing perspective: When everyone heads one way, smart investors head the other.
When the market starts piling on a can't miss good thing, climb off of the pile and run. Run like hell.
I lived through the Dot-Com bubble. I did a start-up and was raising capital when the bubble collapsed. I should have known. While we were planning our business, we made fun of people who were throwing billions of dollars of capital at zero-cash-flow start-ups that made no sense in the real world. One of our favorites was Pets.com, which assumed that people would pay to have 50-pound bags of dog food FedExed across the country. Instead of getting out, we continued with our start-up -- which was, for the record, a lot more sensible than Pets.com. Still, when the bubble burst venture capital dried up and we were out of business before we'd really started.
The housing bubble features the same lesson. When Wachovia jumped in to spend $25 billion for a mortgage broker whose sustainable competitive advantage is so-called "Pick-A-Payment loans," the marketing hook of which is that they don't have to be paid back with any regularity...maybe we should have figured that mortgage backed securities weren't the safe investment everyone was assuming.
Maybe we all should have run like hell.