Sunday, 22 April 2012

3 Stages of a Bull Market and 3 Stages of a Bear Market

The swing of the pendulum 
o Constantly going between greed and fear, risk tolerance and risk aversion, and optimism and pessimism
o In theory, the pendulum should be at the happy medium

 On average it is in the middle 
 But it spends little time there
 Excesses constitute the errors of herd behavior

 3 stages of a bull market 
 Few people feel things are getting better
 Most people realize improvement is taking place
 Everyone thinks things will get better forever
 "What the wise man does in the beginning, the fool does in the end."
o The last buyer pays the price 

 3 stages of a bear market 
 Few people realize that things are overpriced and dangerous
 Most people see the decline is underway
 Everyone believes that things will get worse forever
o Great opportunity to buy if we can behave counter-cyclically - Importance of being a contrarian.

Ben Claremon: The Inoculated Investor  

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