Imagine that you are speeding down one of those long and lonesome stretches of highway that seems to fall off the edge of the horizon.  As the painted white lines become a blur, you notice a sign that says “Warning.” You look ahead for what seems to be miles of endless highway, but see nothing.  You assume the sign must be old therefore you disregard it, slipping back into complacency.
A few miles down the road you see another sign that reads “Warning: Danger Ahead.”  Yet, you see nothing in distance.  Again, a few miles later you see another sign that reads “No, Really, There IS Danger Ahead.”  Still, it is clear for miles ahead as the road disappears over the next hill. Â
You ponder whether you should slow down a bit just in case.  However, you know that if you do it will make you late for your appointment.  The road remains completely clear ahead, and there are no imminent sings of danger.  So, you press ahead.  As you crest the next hill there is a large pothole directly in your path.  Given your current speed there is simply nothing that can be done to change the following course of events.  With your car now totalled, you tell yourself that there was simply “no way to have seen that coming.” Â
It is interesting that, as humans, we fail to pay attention to the warnings signs as long as we see no immediate danger. Â Yet, when the inevitable occurs, we refuse to accept responsibility for the consequences. Â
I was recently discussing the market, current sentiment and other investing related issues with a money manager friend of mine in California. (Normally, I would include a credit for the following work but since he works for a major firm he asked me not to identify him directly.) However, in one of our many email exchanges he sent me the following note detailing the 10 typical warning signs of stock market exuberance.
(1) Expected strong OR acceleration of GDP and EPSÂ (40% of 2013’s EPS increase occurred in the 4th quarter)
(2) Large number of IPOs of unprofitable AND speculative companies
(3) Parabolic move up in stock prices of hot industries (not just individual stocks)
