It is people generally who make high and low markets, because they are optimistic (and greedy) in high markets and pessimistic (and disgusted) in low markets.
How can you - a member representing the public at large - be expected to act otherwise than the public acts?
Does not this mean that you are doomed, by some law of logic, to buy when you should be selling and to sell when you should be buying?
This point is vital. The investor cannot enter the arena of the stock market with any real hope of success unless he is armed with mental weapons that distinguish him in kind - not in a fancied superior degree - from the trading public.
(1) One possible weapon is indifference to market fluctuations; such an investor buys carefully when he has money to place and then lets prices take care of themselves.
(2) But, if the investor intends to buy and sell recurrently, his weapons must be a frame of mind and a principle of action which are basically different from those of the trader and speculator. He must deal in values, not in price movements. He must be relatively immune to optimism or pessimism and impervious to business or stock-market forecasts.
In a word, he must be psychologically prepared to be a true investor and not a speculator masquerading as an investor. If he can meet this test, he will be a member not of the public at large but of a specialized and self-disciplined group.
Returning to the matter of the market's cyclical swings,we must point out that the duration or frequency of these swings has changed considerably since 1921. This is an added obstacle to the pleasing project of investing regularly in low markets and selling out in high ones. Between 1899 and 1921 the industrial average made five well defined highs and five definite lows, an average cycle of about four years. Since then there have been only two clean-cut swings and the intervals between low points have been eleven years and ten years, respectively.
An investor nowadays is likely to grow uneasy and impatient while waiting for his cyclical buying opportunity to reappear. In the meantime, also, his funds will bring him no interest in the bank and only a negligible rate if placed in short-term securities. Thus he can lose more in dividends foregone than he can ever gain from buying at eventual low levels.
Summary
Either buy carefully and then ignore the market fluctuations or if you intends to buy and sell recurrently, deal in values.
Should you patiently wait for your cyclical buying opportunity to reappear? The low-points of the market maybe 10 or 11 years apart. While waiting for these hoping to buy at eventual low levels, you can lose more in dividends foregone; earning little income from your cash holdings.
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