Monday, November 05, 2012

The market is most dangerous when it is most attractive

“Bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria. The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell.”
Sir John Templeton puts it aptly. I fully agree with him.

The problem is that you may have to wait 10 years before you see a time of maximum pessimism. What about maximum optimism, maybe another 10 years?

When stocks are being sold ex-hope and cum-despair; when no one wants to talk about stocks, and when remisers are looking for another job, that is a good time to buy. During such time, professionals are accumulating at their own leisurely pace. You should be there to join them.

On the contrary, when people are rushing in to buy; when stocks are being the talk in coffee shops, restaurants, and wet markets among the hawkers, barbers and shoe-shine boys, that is an excellent time to sell everything.

You see new comers everyday and all the seats in the broker firms fully occupied. You will also hear lots of people bragging about their gains. During such time, the rewards are fantastic, but the risk is extreme. If you can't stand the heat, don't get close to the fire.

Patience is a must, an important ingredient, in the recipe of success.

Know the market, know yourself, and you win.