Published by Kauders Portfolio Management, Authorised and regulated by the Financial Services Authority
As this bear market unfolds, investors will gradually change their minds about the desirability of piling into equities. You may think you are buying cheaply. Other investors must be selling - that's why prices are falling! There are now more sellers than buyers, whereas most people's experience is the era of constantly rising prices (i.e. more buyers than sellers) that is now history.
In other words, enough people now believe it's a bear market to drive prices down. You may not think so; you will, eventually, change your mind. Investors are converted, by events, to the idea that the primary trend of prices is down.
In a bull market, conversion flow continues until people who would never go near stock markets risk money they can ill afford to lose. When there is nobody left to buy, conversion to belief in the bull market has run its course.
In a bear market, conversion flow continues until there is nobody left to sell! You cannot beat the market, so you need to decide soon that this is a bear market. Many investors will eventually regret leaving it to later. Bear markets have some different characteristics to bull markets. Volume of activity rises as prices fall, whereas in a bull market volume rises with prices. In a bear market, prices fall, then rally for ages, before falling again. There are a series of troughs, often years apart, each making a nonsense of the received wisdom to buy cheaply. If you doubt this, just consider how the Japanese market keeps making new lows; most investors have been embarassingly wrong about Japan.
You are welcome to quote or re-use this material, provided you acknowledge the source "www.contraryview.co.uk, published by Kauders Portfolio Management".
Return to home page of contrary view or return to complete index
For information about our advice and services visit our main site or click for contact details
WARNING: The firm can only be responsible for action taken on our advice given personally and specifically to be suitable for each individual. Statements on this site do not, on their own, constitute advice. Please note that UK regulatory requirements prevent us commenting on your existing investments or giving specific advice, unless you first sign one of our portfolio service agreements.
This advertisement has been approved by Kauders Portfolio Management, who are authorised and regulated by the Financial Services Authority in the conduct of investment business in the UK. Opinions and statistics are valid at time of publication but may differ later. We leave them on the site so that you can see how useful our point of view has been.
© Kauders Portfolio Management 2001