The Cycles
The cycles:
a. Near
the peak of the wave, all the news is fantastic. Newspaper, magazines and TV
pundits rave about the strength of the market and the latest and greatest
investment opportunities.
b. Unbridled
optimism is an indication that the market is at a turning point. The public
often become complacent and felt this state of affairs was normal.
c. Skyscraper
index is remarkably consistent in predicting major stock market crash. To me,
the skyscraper index illustrates the business world’s quest for extravagance
amid long periods of economic prosperity, an outlet for the hubris of financial
titans who get swept up in the moment and believe the good times will roll on
into the foreseeable future.
d. Whenever
the market reaches manic levels, with people clamoring to buy stocks at any
price and newspaper touting how much money can be made in the market, investors
should sell stocks to buy bonds.
e. Wait
for the inevitable downturn, when the news is dire and no one wants stocks.
f. At
the conclusion of every crisis in history, the U.S. and world markets were
priced for Armageddon, as if the entire free enterprise model had been a failed
experiment. Books forecasting the greatest depression of all time were among
the best sellers.
g. The
ingredients for a market recovery are eventually put in place by the
government, increasing the money supply and working to make money cheap and
plentiful in the credit market.
h. Over
an investor’s career, the cycles repeat themselves numerous times.
i.
Periodic market panics and crashes are common
occurrences.
j.
Although crashes do offer incredible buying
opportunities, statistically, they only come around every eight years or so, meaning you can’t count on them as part of an
ongoing investment strategy.
k. Observation
of the market over many years has taught me that at any given time, even during
the euphoria of a bull market, bargains are available for the discriminating
stock-picker.
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