One of the great virtuosos of the investment business was Sir John Templeton. He observed that bull markets experience four phases: pessimism, skepticism, optimism, and euphoria. Similarly, my friend Laszlo Birinyi has also identified four phases: reluctance, digestion, acceptance, and exuberance.



In hindsight, bull markets look an easy market to trade. In some ways [with an effective methodology] they are in that generally you start out with some sort of profit.

It’s harder though if you miss the lows and have to decide to get long after a significant move. In this scenario you can get caught in a draw-down if you join just prior to a correction. Worse if you wait for a correction but neglect to buy that dip.

Then you have the sellers of small profits – who initially feel good banking the small profit and then watch in disbelief as the market continues higher – for years.

Which is more or less where we are. To just join now seems highly risky. To stay out might result in just watching the market go higher. Staying long potentially puts profits at risk if you don’t recognise the final top.

No easy answers.