Lessons from the Internet bubble.

Wall Street has discovered the oil and commodities story and is busy introducing new instruments (especially ETFs) that invest in these areas, including an oil ETF (ticker USO), a broad commodities ETF (DBC), and an upcoming silver ETF (SLV). Considering the attention ethanol is attracting, I expect a corn ETF at any moment. (I'm kidding.. I think. Though let's check if 'COB' is available.)

Traditionally, when Wall Street introduces an abundance of investment options for 'the little guy' that aim to allow concentrated investments in a certain segment of the market, it is a very clear warning sign that this particular investment trend is nearing a top.

As an example, when the Internet bubble of the late 1990's really got going, there were a large number of mutual funds introduced that focused on technology and internet stocks. Within a few years, as that particular fad ran it's course, people who put their money in these concentrated funds saw their investments essentially decimated.

I happen to think we are not at a significant top (ala the Internet bubble), as energy stocks and commodity stocks still represent a fairly small portion of the overall market, don't have the kind of valuation extension you saw in the Internet bubble, and we don't have quite the same trading frenzy seen then. Also, the Munder Netnet fund, one of the poster children mutual funds of the Internet bubble, was actually introduced very early (1996), and made some people a nice amount of money if they exited before it all blew up.

I happen to think we're not at a significant top, but I wouldn't rule out a short term, or maybe even an intermediate term one.

As a result, I'll be keeping an eye on what I own, why I own it, and my sell discipline a little more intensely than usual.

MSN: Leave the new oil ETF to the pros.