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Overpriced US stocks ‘nightmare’ driven by ‘young & dumb investors’ – fund manager

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“They are buying bullish call options that expire inside two weeks. There was ($500 billion) of bullish call options bought in a four-week stretch by small retail traders,” Smead said.

A call option is a contract between the buyer and seller of the call to exchange a security – that is, a stock – at an agreed price.

“In ’99, it was $100 billion. In ’07, it was $100 billion. That’s what young, dumb investors are doing and when the market makers see those [call buying] out there, they sell that call to that person and buy the stock,” he added.

The fund manager suggested the willingness of wealthy investors and the baby boomer generation to “ride the index to a fault” and overpay for stalwart American businesses such as Costco and Microsoft was also detrimental.

“Microsoft is a wonderful company, but at 40 times earnings, there is zero percent chance of that producing wealth for someone over the next 10 years that will meet their needs,” Smead said.

For more stories on economy & finance visit RT’s business section

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