If the market were a disciplined calculator of value based exclusively on company fundamentals, the price of a security wouldn’t fluctuate much more than the issuer’s current earnings and the outlook for earnings in the future.
Three stages of a bull market:
- A few forward-looking people begin to believe things will get better.
- Most investors realize improvement is taking place.
- Everyone concludes things will get better forever.
Three stages of a bear market:
- A few thoughtful investors recognize that, despite the prevailing bullishness, things won’t always be rosy.
- Most investors realize things are deteriorating.
- Everyone is convinced things can only get worse.
