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Investing veteran warns three market crashes coming as ‘euphoria’ is fading

Investing veteran warns three market crashes coming as 'euphoria' is fading

Renowned investor Bill Smead, Chairman of Smead Capital Management, has sounded an alarm regarding the future state of the financial market, warning investors to be prepared for several downturns. 

Smead’s cautionary remarks come at a time when he pointed out that the euphoria surrounding the markets appears to be fading, prompting concerns, he said during an interview with David Lin published on May 11. 

According to the expert, drawing from historical instances, investors should expect three imminent bear markets in the next decade to 15 years.

He pointed to the bear markets of the early 1970s, late 1970s, and the turbulent period at the outset of his career in the investment business as examples of corrective phases necessary for long-term market health.

“I would guess in the next 10 to 15 years there will probably be three bear markets, and I say that because we had a 73/74 bear market, and then there was another bear market in later 70s, and then my first two years in the investment business the Dow went down <…> When the bull market took off,” he said. 

Dangers of participating in market euphoria

At the same time, the investor also highlighted the dangers of participating in the late stages of financial euphoria episodes, echoing the sentiments of the chairperson of Berkshire Hathaway (NYSE: BRK.A) Warren Buffett.

 “If you’re going to be a big winner, you do not want to be involved in the late stages of a financial euphoria episode,” Smead cautioned.

Drawing on decades of market data, Smead pointed out four seminal peaks in euphoric enthusiasm for common stocks over nearly a century, with notable spikes occurring in 1929, 1969, 1999, and the present day. 

He referenced former Berkshire Hathaway vice chairperson Charlie Munger’s observation that the current era represents the biggest financial euphoria episode in his 75-year career, signaling potential trouble ahead for investors.

Notably, Smead’s assessment comes when financial markets remain on edge amid mounting concerns regarding market valuations, inflationary pressures, and geopolitical uncertainties. Additionally, the market is also anticipating the next Federal Reserve monetary policy decision.

Meanwhile, the projection for a market slowdown arrives as the stock market exhibits resilience, with most equities trading in the green zone in the short term.

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