Monday, December 1, 2014

Last Stage of Bull Market?

As Sir John Templeton puts it so rightly: "Bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria."

Pessimism is born.

After the global financial crisis of 2007-2008, stock markets plummeted and everybody got out of stocks.  People feared a great crash and cashed out.  The worst was feared.  Large financial institutions might have collapsed if not for the bailouts.  Everywhere was gloom and doom.  Nobody actually wanted to enter into stocks.  This would actually have been the best time to buy.  But nobody did.  Everyone was pessimistic about the outlook for the world.  Unemployment was high.  Who could be optimistic in a time such as this which the world has not seen since the Great Depression in the 1930s?

Skepticism grows.

As quickly as the stock market crashed, it started to recover.  Sure, unemployment rates particularly in US and other countries remained high.  But that did not stop the stock markets around the world to recover.  People were skeptical about growth prospects.  They were skeptical about the Fed's response (perhaps rightly so).  They were skeptical about every good news that came out.  Everything was taken with a pinch of salt.

Optimism matures.

Slowly but surely, unemployment rates went down.  Yes, the eurozone has its crisis.  But surely that can be solved.  Japan's Abenomics also seemed to be the solution.  Suddenly, the world was not as frightening a place.  Everything was getting better.  GDP growth, unemployment rates....even inflation rates remained low despite the amount of money that was printed.  With the pessimism and skepticism gone, gold prices began its fall as a safe haven is no longer required.  Why miss out on the bull market by keeping money in gold?

Euphoria kills.

Huge IPOs - LinkedIn (2011), Facebook (2012), Twitter (2013), Alibaba (2014).
Stock markets at record highs.
Heard people talking about the latest stock tip?  Or how much they made from investing in the stock market?  Sounds familiar?  It sounds eerily familiar.

Concluding remarks:
For those who have missed out on the bull run, it is just too bad.  Time is probably against you now. The last thing you want to do is to arrive at a party too late.  Yes, the party could go on for a long more time (maybe months or even years).  You might miss out the fun.  But there is also the possibility that the party ends the moment you get in.

This is the conclusion of the matter:  "Be fearful when everyone else is greedy".

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