Where’s the pyramid? (II)

I heard some stock people in the gym talking about how many of the calls they were getting today were people getting into the market…not out of the market. The thought is that stocks are on “sale” and that people want to get in when the market is low.

There is a saying that “the stock market will go up…it always has.” And these folks were clearly taking advantage of that ‘truth’.

It seems to me that this isn’t investing at all per se. Getting in low because everything’s bound to go up sounds more like a slot machine player than an investor. This machine is due to hit!

Of course, if it takes 20 or so years for the stock to go back up from the current price (which can happen), then it wasn’t such a sure thing if you’re going to need that money.

Quick googling around shows a couple trends that also make the stock market look more like a pyramid/ponzi scheme than investing. First, the level of participation in the stock market has grown enormously over the last 30 years. Ponzi/pyramids required the constant growth of participants to keep the system growing.

Second, the price to earning ratios of stocks seem to be much higher these days than they were 30 years ago….especially during the 90′s bubble, and the last 4 years. This indicates that the buyers aren’t really interested in the earnings. They’re just buying the stocks. One of the signs of a pyramid is no interest in the product, but participating in the “sure thing”.

Both these observations make me think that there are some very ponzi-esque traits of the stock market. With boomers entering their 60′s and needing to cash out while they can, could a scheme be collapsing? Or is this just a temporary slide and stock prices will bottom out and resume the inevitable march upward?

I’m a little concerned that the phrase “stocks always go up” seems like more of an article of faith and security. I just can’t get away from the minor prophets in all this.