Being Too Early Is Indistinguishable From Being Wrong

One aspect of being a contrarian investor is making what appears to be an incorrect call on markets when they become expensive. When markets reach "the top," we imagine a single point. But a market peak is usually a process, and it may take six to twelve months before the fall actually begins. Up until that point, you look like a fool as markets climb higher, and folks take the time to let you know it. Especially those making hay while the sun shines.

During the falling process, which can be sudden like 2008, or take a few years like 2000 to 2003, or slower still like 1965 to 1982, markets stage what are called bear market rallies, and some are substantial. They happened in 1929, 1973, 2000 and 2008. What made those declines different was that markets were in secular, not cyclical, bear markets, the aftermath of extreme overvaluation following years of above-average returns. Think of everything since the March 2009 low. Alas, it always comes to an end. And the winners are the investors who understand that …

The peak is a process. So is preparation. The investors who do well through what follows will be the ones positioned before it arrives, not after.

This week Steve, Tom and Jacob sit down with one book and work through it properly: Howard Marks' Mastering the Market Cycle. The psychology pendulum, the three stages of bull and bear markets, and what it means for how you position right now. Free listeners get the full episode.

Marks says the superior investor is mature, rational, analytical, objective and unemotional. That starts with knowing your own wiring. Our free investor personality assessment, built on the Enneagram framework, takes ten minutes and shows you your archetype, your strengths, and the blind spots that cost you money.