Currently reading Howard Marks’s insightful book, Mastering the Market Cycle. While I could literally pull dozens of quotes that jibe with yesterday’s post on market sentiment, I’ll share just this one for now:
“What’s the greatest source of investment risk? Does it come from negative economic developments? Corporate events that fall short of forecasts? Companies whose products become uncompetitive? Earnings declines? Low creditworthiness? No, it comes when asset prices attain excessively high levels as a result of some new, intoxicating investment rationale that can’t be justified on the basis of fundamentals, and that causes unreasonably high valuations to be assigned. And when are these prices reached? When risk aversion and caution evaporate and risk tolerance and optimism take over. This condition is the investor’s greatest enemy.”