It does not take a genius to know that great fortune can be made at the bottom end of a cycle, be it in stocks, property, gold or any other market cycles. At the high end of a cycle, great fortune and moneymaking opportunities can also be lost for those who get caught. The US market has been on a bull cycle for the last few years. Has it now reached its top end?
The article – “STOCK-BULL TOPPING” in the link below offers investors, especially those relatively new to the stock market or those looking for big moneymaking opportunities, some valuable insights into this matter.
www.321gold.com/editorials/hamilton/hamilton061314.html
Among the noteworthy pointers put forth by the writer are –
1. “Cyclical stock bulls are born out of cyclical stock bears, which leave stock prices undervalued in price-to-earnings-ratio terms. …so the early rallies out of those bear-market bottoms with peak despair are big and fast. Stocks shoot out of their bear-market lows at steep trajectories. But within a year or so, the easy gains have been won. The stock markets are no longer oversold and have to start advancing based on fundamentals instead of sentiment. The underlying economic outlook has to be good, and corporate profits have to be improving, to attract in additional investors. And since the economy and earnings can only grow so fast, the rate of stock-market gains moderates considerably. But the deep wounds from the preceding stock bears are still raw, so there is much skepticism in the middle stages of cyclical stock bulls. Thus periodic major sell offs are common, from large pullbacks exceeding 7% to full-blown corrections beyond 10%. These events are very healthy, as they rebalance sentiment away from the excessive greed and complacency rampant after major uplegs have surged higher. All this is normal bull-market stuff, good for 100% gains doubling the preceding cyclical-bear lows.”
2. "Why studying and understanding market history is exceedingly important for investors. The stock markets are forever cyclical, an endless parade of bulls followed by bears followed by bulls again. No bull market runs forever, they all fail"
3. “Prudent stock investors realize they need to study stock-market history and not fight the stock-market cycles. They know after extreme runs they have to take the contrarian view and do the opposite of what is popular. You can't buy low and sell high if you succumb to herd-mentality groupthink, as stock prices are lowest after stock bears when everyone hates stocks and highest after bulls when everyone loves stocks.”
