Another potentially timely Howard Marks quote:
“The pendulum cannot continue to swing toward an extreme, or reside at an extreme, forever (although when it’s positioned at its greatest extreme, people increasingly describe that as having become a permanent condition).
Like a pendulum, the swing of investor psychology toward an extreme causes energy to build up that eventually will contribute to the swing back in the other direction. Sometimes, the pent-up energy is itself the cause of the swing back—that is, the pendulum’s swing toward an extreme corrects of its very weight.
The swing back from the extreme is usually more rapid—and thus takes much less time—than the swing to the extreme. (Or as my partner Sheldon Stone likes to say, “The air goes out of the balloon much faster than it went in.”)”
My personal experience with long bull markets is that while all signs may point to extreme conditions (bubbly if you will), the market can rest at the extreme for an extended period of time — so be careful if you’re of the mind to short current conditions.
However, as the quote points out, once the market awakens to reality it moves rapidly in the opposite direction. The last bear market wiped out 11 years of gain in a mere 17 months…
Again, not making a call here, just pointing out the risks and helping clients understand what has us more cautious (but not all out defensive) than we’ve been in a decade…