CHAPEL HILL, N.C. (MarketWatch) — The risk of a major bear market in stocks is now higher than it’s been in years.

That, at least, is the message of an indicator that keys off the amount of risk incurred by the top-performing advisers. On average, the top 10 finishers in the 2014 Hulbert Financial Digest performance scoreboard recommended portfolios that were more than three times riskier than the stock market itself.

That is one of the highest levels to have emerged from the Hulbert Financial Digest’s more than three decades of performance tracking. In calendar 2011, in contrast, the comparable risk level among the top 10 finishers was less than a quarter as much. It’s been growing more or less steadily ever since.

What makes this trend so alarming is that the stock market has been near a major top whenever the top performers’ risk levels were at or close to current levels. In 2006, for example, the last calendar year prior to the 2007-2009 bear market, it rose to slightly higher than current levels: 3.85 times riskier than the market versus last year's 3.32 times.

In 1999, the last calendar year prior to the bursting of the dot.com bubble, the comparable level was 2.58.

Risk-taking is correlated with the market cycle since bear markets are so punishing to those incurring lots of risk. After big market drops, when memories of recent losses are particularly fresh, relatively few advisers are willing to incur big risks. As those memories fade, however, more and more advisers venture further out on the risk spectrum.

The process keeps going until the next bear market, when this risk-taking cycle begins all over again.

In fact, the current market environment is what Adam Smith called a “kids market.” I’m referring to the pseudonymous author and his investment classic from the late 1960s titled “The Money Game.” Smith introduced the concept of a “kids market” to describe an investment environment in which the advisers and traders making the most money are those too young to remember the last bear market.

“Memory can get in the way of such a jolly market,” Smith wrote.

Smith created a fictional character called The Great Winfield, who exploited kids’ markets by only hiring investment managers who were not yet 30 years of age: “The strength of my kids is that they are too young to remember anything bad, and they are making so much money that they feel invincible. Now, you know, and I know, that one day the orchestra will stop playing and the wind will rattle through the broken window panes, and the anticipation of this freezes [the rest of] us” who are old enough to remember.

The bottom line? Almost by definition, this bull market will end when the fewest amount of people are acting out of fear of another bear market.

And that’s just another way of saying it will happen when we least expect it.

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