3 Signs You Missed Before the Crash of 2013

The market may not crash this year.

Let's lead with that in light of the fiscally salacious nature of this headline. Stocks appear vulnerable to a sharp correction in today's climate of rising rates and political unrest overseas, but that certainly doesn't mean that it will happen. It's never that easy.

Behind every timely market call of a market top, there are countless others that think they got it right despite curling into the fetal position at markedly lower price points.

This isn't a market call. I'm bullish on stocks, at least for the long haul.

However, it seems that everyone's a genius in retrospect. Investors have no problem picking out the telltale signs of a crash or bubble after everyone is walking through the ruins. Whether it was the obsession with site traffic over profitability ahead of the dot-com bubble of 2001 or the loosening of lending standards before the real estate market collapse a few years ago, everybody believes they saw it coming.

They didn't. 

Let's go out on a limb, then. Let's be fashionably early for a change. Let's pick out what in retrospect will be the telltale signs of a frothy market before the crash -- that may or may not happen -- takes place.

Here are three recent signs that the market had it coming.

1. Tesla is a $20 billion company
One of the market's biggest winners this year has been Tesla Motors (NASDAQ: TSLA  ) . If you had invested a Chevy Volt in Tesla's stock at the beginning of the year, you would have enough money to buy a pair of Model S sedans.

Yes, Tesla is the coolest company on the planet. Elon Musk is a deity in some circles. However, this is still a company selling roughly as many plug-in cars a month as the Volt or Leaf.

It's true that Tesla can't keep up with demand, but even its own website has the waiting list for a new Model S at between one and three months for an order placed today. That's not so impressive for an assembly line cranking out just hundreds of cars a week.

Now, it's true that Musk is a genius. It's also true that more attractively priced Tesla cars will be on the way in a few years. However, does any of this justify the stock's $20 billion market cap? Everything can go right for Tesla in the coming years, and it may still wind up being no better than a $10 billion company.    

2. Microsoft moving higher on the capitulation of Steve Ballmer
Last Friday's 7% pop in Microsoft (NASDAQ: MSFT  ) shares on news that CEO Steve Ballmer will leave within a year after his replacement is found was jarring.

Ballmer is certainly worthy of criticism, but there is nothing that he did that is reversible. There is no CEO that can go back in time to beat Apple (NASDAQ: AAPL  ) to the iPhone in 2007. Actually, if Microsoft wanted to be a leader in the smartphone market, it would have actually had to have beaten Apple to the iPod in 2001. The reason that Apple's iPhone became so popular is because everyone trusted it as a premium brand in portable consumer electronics on the heels of the iPod's success. There's no way that the company behind the Zune portable media player would be the game changer in mobile come 2007.

However, even Apple's dominance was short-lived. Google's (NASDAQ: GOOGL  ) Android has quickly overtaken Apple for global market share in smartphones and, more recently, tablets. Ballmer could have beaten Google to the punch by making its mobile operating system open source, but the market would've hated trading the high margins of Microsoft's premium software for the pursuit of mindshare on a pro bono basis. 

The next Microsoft CEO can't change the past, and the present environment of platform-agnostic gadgetry makes it highly unlikely that anyone will ever profit off of operating systems the way that Microsoft did in the past.

3. The IPO market is a glutton for punishment
American Homes 4 Rent (NYSE: AMH  ) went public earlier this month.  

Everything about this IPO raised flags. 

American Homes 4 Rent is the country's second-largest player in the niche that buys distressed properties, dolls them up, and rents them out. This market is so young that American Homes 4 Rent just got into the business two years ago and it's already the silver medalist. 

Can you feel the bubble? This may have been a great strategy a couple of years ago when the real estate market bottomed out, but raising money now means that they will be paying today's prices for new properties. The only thing distressed these days is the buyer. With median real estate prices up nearly 14% over the past year, the costs to buy new digs are growing faster than what these companies can square away in rent. 

It gets worse. American Homes 4 Rent isn't the first company in this niche to go public. Two smaller players hit the market in the past eight months, and both of them are trading below their original IPO prices. These companies are structured as REITs, but they're not shelling out any payouts at the moment. How does an underwriter get investors excited about this one? 

Well, American Homes 4 Rent had to settle for the low end of its pricing range. Several weeks later it's still trading near its $16 IPO price tag.

Something's got to give.

Brace yourself
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Read/Post Comments (16) | Recommend This Article (14)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 28, 2013, at 6:14 PM, gr8twhtebuffalo wrote:

    Hey there, I'm new to Fool.com and I love the site.

    I max out my 401k & IRA each year. I have about one year of reserves if I lose my job and the only debt I carry is my car payment. Being in my late 20's I feel very comfortable in taking the next step into actively trading individual stocks.

    I would like to invest in TSLA long term because I believe in what they're building. Assuming this stock goes down and settles some at what price point makes sense for me to get in?

    Thank you for your time.

  • Report this Comment On August 28, 2013, at 9:22 PM, ScottAtlanta wrote:

    Wait Wait Wait. B/f you help Jr. above....give me some winning advice.

    I too max out my IRA with contributions from one of many credit cards. I have scores of tens of thousands of dollars in debt, I have five mortgages...all severely underwater...

    What do I buy and when to get outta this mess!!? Are you telling me to short Tesla? B/c I'll do that...it wouldn't be the first genius I've taken advantage of...how do you think Hawking ended up in that wheel chair?

  • Report this Comment On August 28, 2013, at 9:25 PM, MartyTheCanuck wrote:

    greenbear

    Congratulations on your financial blueprint. You're doing great, you're ahead of people twice your age.

    Now your question is very tough. It's very tough to predict the short term of stock prices, especially something as volatile and unpredictable as Tesla.

    I truly believe the company has a bright future but a lot is already priced into the stock. If it comes down, it may come down a lot. 50% down isn't out of the question. I'm long TSLA, with an average price of 45$. I still haven't sold any share, but I'm considering the idea. If I decide to sell, I would love to buy back at 80$, maybe 100$. Remember that momentum will carry a stock higher than it deserves, but will also bring it down lower. And since nobody know how much money Tesla will make in 3-4 years, there is no guiding light for people relying on Fundamentals.

    Good luck

  • Report this Comment On August 28, 2013, at 11:01 PM, AgeOfRobots wrote:

    @scottatlanta - LMAO!

  • Report this Comment On August 29, 2013, at 1:15 AM, nextseason wrote:

    Investing is gl

  • Report this Comment On August 29, 2013, at 1:16 AM, nextseason wrote:

    I was trying to say that investing is glorified gambling. Tread carefully.

  • Report this Comment On August 29, 2013, at 2:33 AM, OregonOne wrote:

    "Whether it was the obsession with site traffic over profitability ahead of the dot-com bubble of 2001 or the loosening of lending standards before the real estate market collapse a few years ago, everybody believes they saw it coming.

    They didn't."

    Some people did Search YouTube for : "Peter Schiff Was Right"

  • Report this Comment On August 29, 2013, at 11:22 AM, rianjones1983 wrote:

    There are plenty of car companies in the world, there's not really a need for a new car company or another gasoline car company. Elon Musk @ Teslive 2013 @ http://www.earningsimpact.com/Transcript/83311/TSLA/Tesla-Mo...

  • Report this Comment On August 29, 2013, at 6:37 PM, JadedFoolalex wrote:

    "investing is glorified gambling"

    It is if your a DAY TRADER!!!! Investing is a life time endeavor. You are looking for long term companies providing long term needs! Everything else is gambling.

  • Report this Comment On August 29, 2013, at 6:50 PM, FoolInCharge wrote:

    @ScottAtlanta - after reading your response, had to step outside to let out the biggest laugh.

  • Report this Comment On August 30, 2013, at 8:51 AM, cmalek wrote:

    @Rick:

    "Ballmer is certainly worthy of criticism, but there is nothing that he did that is reversible. "

    Don't you mean "irreversible" or "not reversible"? Otherwise you are saying that Ballmer hurt MSFT permanently.

    TSLA is being bid up by speculators looking for a short-term profit, not by investors.

  • Report this Comment On August 30, 2013, at 11:09 AM, gkirkmf wrote:

    @cmalek

    I think that what he meant was that the RESULTS of Ballmer's (MSFT's) inaction are not reversible now. As an observer/user of Microsoft for 20 years, I agree with that assessment. The key words here are "NOTHING THAT HE DID" . It is the equivalent "NOT".

  • Report this Comment On August 30, 2013, at 3:32 PM, brittlerock wrote:

    OK - Let's assume we are on the verge of a bubble. That begs a very interesting question: How do you decide what to sell?

    A little personal history, when I first got into investing I figured I was too stupid to know what to do, so I paid for some advice. I was advised to buy solid, blue chip companies that paid dividends. I did that for a while, but it was boring. The stock didn't move much and the dividends weren't great because I didn't own much stock. I wanted to get rich quick.

    So then I chased hot stocks. I made some money, I lost some money - overall, I came out a loser. But it took me a while to figure it out.

    So then I figured, OK, I don't do this so well, I'm getting older, maybe I should turn things over to a professional. I went to Edward Jones. I was advised to invest in a number of mutual funds. But after a while I figured out this was a huge racket. I was paying someone who guaranteed mediocrity at best. And why shouldn't they? They get paid on the basis of the amount of funds managed, not performance. That sucks.

    Then I discovered Motley Fool. Irony here, actually re-discovered. I had become familiar with the Fool years before and advised a friend who was new to investing to follow, but I did not take my own advice. DOH!

    So now most of my investments are up nicely - still have a few losers, but nobody bats 1000. I have always planned to invest for the future. I have a special tax situation due to a substantial charitable gift. I need to take advantage of it, or lose it. Now I'm retired and I've decided I am living my future. The best thing to do is cash in some of my investments now and pay off my mortgage (my only debt).

    But the puzzle is what to sell? I don't want tickers, I want criteria. The Fool claims the best time to sell is never, but that doesn't really work for most of us. How do you make the sell decision?

  • Report this Comment On August 31, 2013, at 5:26 PM, gr8twhtebuffalo wrote:

    @Marty, thanks for your reply. From what I've seen it seems most think the TSLA stock is overpriced and I'm naturally skeptical given its huge increase in such a short time. The stock will stay on my watch list.

  • Report this Comment On September 01, 2013, at 10:15 PM, lowmaple wrote:

    brittlerock You could sell some percentage of each so you have some cash to buy later.

  • Report this Comment On October 24, 2013, at 10:38 PM, thidmark wrote:

    "I was trying to say that investing is glorified gambling."

    The mantra of bad "investors," who, alas, were actually gambling.

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