Nature likes to follow cycles and markets are no different. Markets cycle can be understood by looking at different phases they normally go through. Knowing what stage we are in the markets can help us to make better investing decisions. It may help us to control our urges to give in and buy over valued and junk stocks.
Valuation vs Time
Mean Reversion is a powerful mental model. The reversion to mean is an ‘iron law’ of stock investing and its only the time factor which may make people forget about it.
Behaviour of participants in Bear and Bull Market
Stock Markets are classified into Bear and Bull Markets (Sideways can be considered another phase). Each phase seems to follow a trend of behaviour by market participants