The Market Cycle

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.

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