Achieving investment success - awareness of the pendulum

Howard Marks discusses the importance of understanding the market pendulum in his seminal investment book "The Most Important Thing".

"Very early in my career, a veteran investor told me about the three stages of a bull market. Now I'll share them with you.

• The first, when a few forward-looking people begin to believe things are getting better
• The second, when most investors realize improvement is actually taking place
• The third, when everyone concludes things will better forever

...Thirty-five years after I first learned about the stages of a bull market, after the weakness of subprime mortgages ( and their holders) have been exposed and as people were worrying about contagion to a global crisis, I came up with the flip side, the three stages of a bear market:

• The first, when just a few thoughtful investors recognize that, despite the prevailing bullishness, things won't always be rosy
• The second, when most investors recognize things are deteriorating
• The third, when everyone's convinced things can only get worse."