About 45 years ago — in the early 1970s — I received one of the greatest gifts I was ever given, when an older and wiser investor introduced me to “the three stages of a bull market”: the first stage, when only a few unusually perceptive people believe things will get better, the second stage, when most investors realize that improvement is actually taking place, and the third stage, when everyone concludes things will get better forever. The arrival of this simple truth opened my eyes to the notion of investors’ psychological extremes and the impact of those extremes on market cycles. Like
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