At the top, optimism is king, speculation is running wild, stocks carry high price/earnings ratios, and liquidity has evaporated. A small rise in interest rates can easily be the catalyst for triggering a bear market at that point. On the first decline, pessimism does not pick up very much. Remembering the lessons of the bull market, people rush to buy on the decline, figuring that prices will bounce right back to new highs. But the first rally falters, doesn’t get very far, and fails to make a new high. The next decline comes and carries prices even lower.
Now people begin to get a bit nervous and the pessimism slowly rises. It takes numerous sell-offs over many months before the pessimism really picks up speed. At some point in the midst of a bear market, business conditions worsen and the pessimism grows and grows. It finally reaches the depths of pessimistic thinking when business conditions are terrible. Then we’re right back to the beginning of the cycle at the bottom of the bear market, when pessimism is at a peak.
On the mat tonight, rolling with a lawyer and the subject of stocks comes up. He says, "I just bought more today. It's a great time to buy." I tried to keep my mouth shut.
On the mat tonight, rolling with a lawyer and the subject of stocks comes up. He says, "I just bought more today. It's a great time to buy." I tried to keep my mouth shut.