Beware the Roaring Twenties

It’s the new Roaring Twenties, so let’s call up an authentic voice from the last such era: Thorstein Veblen, an economist and social critic who coined the phrase “conspicuous consumption.”

- Jeffrey R. Kosnett

Veblen’s most enduring observation is that the more something costs, the likelier wealthy people or status-seekers are to buy it. Economists call such baubles Veblen goods. And today they seem to be plentiful in many investors’ income portfolios.

Stocks are expensive, bond prices appear gold-plated, and real estate investment trusts just finished their best year since 2006. Gold is on a roll. The case for caution is legitimate.

Then again, the excesses of the 1920s—and other bull runs, such as those in the 1980s and 2010s—went on and on, frustrating killjoys and permabears. I’ve advocated that everyone stick with what’s working, choose higher-yielding investments over lower-yielding ones, reinvest returned cash and new money, and ignore short-term, news-driven setbacks. That’s paid off.