Updated: Mar 26
As investors we discover every day "shoeshine boy" indicators. In this article we will talk about the real story of Joe Kennedy, JFK's father during the Wall street crash of 1929 and the decisions he took after a discussion with his shoeshine boy. Through other concrete examples you'll discover how this human "indicator" can be a behavioral sign of a future market crash.
1. JFK's father and the shoeshine boy :
The story took place in 1929 : Joseph Patrick "Joe" Kennedy, Sr. JFK's father, claimed that he knew it was time to get out of the stock market when he got investment tips from a shoeshine boy. On that moment Joe Kennedy had the intuition that we were at the end of the bull market and subsequently he decided to short the market and became .. multi-millionaire !
Ever since, the shoeshine boy has been the metaphor for "time to get out"; for the end of the mania phase in which everyone, even the shoeshine boy, wants in.
2. In the end of the 1990's you were considered as stupid if you didn't invest in the tech sector...
Remember the end of the 90's you all probably met a shoeshine boy or a taxi driver that invited you to invest in the tech sector. I personnaly remember that during the golden tech period customers came into my office to claim a 30% yearly return on their portfolio. But unfortunatelly most of them didn't want to listen to my precautionary advices based on the fact that everyone targeted that kind of investment. And what had to happen happened, they lost a lot of money during the crash due to a lack of diversification.
3. Bitcoins : everybody is talking about Bitcoins so it's an investment opporunity ?!
Today I hear a lot of "non-professional" investors considering "Bitcoin" as an investment opportunity, and in the same time "non-financial" newspapers writing articles about this "cryptocurrency". Would Joe Kennedy consider that as a shoeshine indicator? I don't know but in any case it's time to be vigilant.
(*I wrote this part in march 2017 and one month after the Bitcoin dropped by 40% ! But today (feb-21) after a massive transaction made by Tesla the most popular cryptocurrency reached 56 k USD. Is there a limit in Bitcoin's sky ?)
4. Do you think that we experienced with the Bitcoin the last or the worst example of a "shoeshine indicator" ?
Of course not ! You know Homo Sapiens is very creative to dig each time deeper and deeper in the universe of absurdity.
So, look at this. Very recently, on the 4th of march 2021, VanEck investments ltd a US fund manager launched the "BUZZ" tracker based on ... the highest positive social sentiment regarding 75 selected US stocks.
This business model is probably based on very smart marketing strategy based on but maybe totally aberrant for a serious investor. I let you imagine how the market will react on a long term period about stocks listed in what we can call litteraly a"word of mouth tracker". Concretely, social "influencers" will have the power to influence the market. Rumours will probably increase their impact on those specific stocks. We can also imagine that the listed stocks will experience a high level of volatilty.
I'm already really curious to know what will Warren Buffet think about this concrete "shoeshine boy" ETF ? Can we imagine in the same time a contrarian "BUZZ" ETF produced by the same financial institution ?
In conclusion, it's interesting to remember the explanation of Joe Kennedy's success, he said that he survived the crash "because he possessed a passion for facts, a complete lack of sentiment and a marvelous sense of timing". So ask advices to professionals in order to avoid the Shoeshine boy (bad) experience !
Thanks for your time, don't hesitate to share this aricle with your network.
Sébastien Van Passel
Founder of 4Investors
Founder of PerpetuHome - life annuity
Expert in Business Development - Financial sector