Awareness Of The Pendulum
The mood swings of the securities markets resemble the swing of a pendulum. They swing between the following:
- Between euphoria and depression
- Between celebrating positive developments and obsessing over negatives
- Between overpriced and underpriced
The main risks in investing:
1.The risk of losing money
2.The risk of missing opportunity
It is possible to largely eliminate either one, but not both.
Three stages of a bull market:
1.A few forward-looking people begin to believe things will get better.
2.Most investors realize improvement is taking place.
3.Everyone concludes things will get better forever.
Three stages of a bear market:
1.A few thoughtful investors recognize that, despite the prevailing bullishness, things won’t always be rosy.
2.Most investors realize things are deteriorating.
3.Everyone is convinced things can only get worse.
In the darkest times, it takes analytical ability, objectivity, resolve, and imagination to think things will ever get better. The few people who possess those qualities can make unusual profits with low risk.