It’s been noted that market rallies in equities have four distinguishable phases. They’re born in mood of pessimism, pass into a sceptical or cautious phase and then move into an optimistic phase. Lastly, they turn euphoric before the next correction looms. The length of time for each phase or rally in general varies.
In view of the market rally of 2013 I think we are now in the optimistic phase of the cycle. Considering how far the market has moved since May 2012, or indeed the March 2009 lows, I wouldn’t like to say how close we are moving into the euphoric phase. There are certainly plenty commentaries already of that opinion compared to others who cast shares as fair value to government bonds. People are chasing yields not just with stocks but in a number of complex vehicles including once more collateralised debt obligations or CLOs which use a combination of debt and equity to invest in leveraged loans popular before the 2007-2009 market crash. Perhaps memories are short after all certainly understanding these types of products is still limited to a few.
There are still ‘brokers with clients’ funds to invest and they’ll never get a return if they keep their clients’ money in cash. If the market moves higher and they haven’t committed funds they will have an awkward time explaining the missed opportunity. Market timing is notoriously difficult and playing wait and see eventually draws investors into the markets somehow.
I recall buying shares in 2009 it was very difficult and scary especially when the commentary was that stocks may take years to recover or still had fall further to fall. As a result I bought very cautiously and I sold some when a small profit was achieved by 2011. I have since watched shares like Weir and Renishaw double again. The lesson is to hold your winners and sell your losers but a profit should never to be regretted. I must live with my shortcomings and not regret former actions or inactions as nobody can tell when the market is about to climb or fall dramatically. It’s will be as tough again to know when to sell this market but for now I’m watching and waiting for the time when I think it’s become euphoric and then the difficult bit of selling begins.
Applying legendary investor’s Warren Buffet’s maxim to be “fearful when others are greedy and greedy when others are scared” is worth noting but most of all having the courage of my convictions to act when I think it’s right but for now it’s hard to hold, hold, hold and….
As a last observation I’m not buying anything at these levels so that says something.
LDC