One of the Few Promises that I Shall Make
I don't make many promises, but one promise I regularly make to clients is that I will not be calling the top or bottom of markets with accuracy. Every rule has an exception and I seem to have fluked calling the peak of the Bitcoin bubble with timing that can only be described as exquisite. I blogged in early December last year as the price rise turned parabolic about my fears for this market. This warning turned out to be within a couple of weeks of the top of the Bitcoin market. The price is currently trading around $5,500, a fall of 70% from the peak.
Source: Bloomberg
While this timing might seem pretty cute, it overlooks the fact the price almost doubled during that two week period between my blog post and the market peak, which just goes to show how tough the role of a prognosticator is.
Of much more interest to me, and I am sure many of my readers, is where we might be in the current stock market cycle?
Most cycles experience an extended up trend period followed by a relatively short but sharp bear market and this very stylised chart illustrates this nicely. I deliberately do not place any scale on either axis, however, it seems reasonable to suppose that we are closer to the end of the cycle than the beginning. If we assume we are at the marked point, markets have room to make further headway over the short term. However, looking at the medium term (3-5 years) there may be little in the way of return and plenty of volatility ahead for investors.
Novice investors may be tempted to gun up the risk in their portfolio to extract every drop of profit from the bull market, believing that they'll magically sell out around the market peak. More experienced hands will tell that life just isn't that easy. I have no confidence in my ability to precisely time the market and as with the Bitcoin example above, a degree of precision is often required.
We see plenty of amber lights warning us that we are approaching the latter stages of this bull run, and that we are somewhere around the marked spot. There are few red lights to suggest that the peak of this bull market is nigh. The medium term return outlook justifies our cautious positioning and if we can identify some red flashing lights, we will dial down the risk in our portfolios and turn defensive.
Source: Bloomberg
While this timing might seem pretty cute, it overlooks the fact the price almost doubled during that two week period between my blog post and the market peak, which just goes to show how tough the role of a prognosticator is.
Of much more interest to me, and I am sure many of my readers, is where we might be in the current stock market cycle?
Most cycles experience an extended up trend period followed by a relatively short but sharp bear market and this very stylised chart illustrates this nicely. I deliberately do not place any scale on either axis, however, it seems reasonable to suppose that we are closer to the end of the cycle than the beginning. If we assume we are at the marked point, markets have room to make further headway over the short term. However, looking at the medium term (3-5 years) there may be little in the way of return and plenty of volatility ahead for investors.
Novice investors may be tempted to gun up the risk in their portfolio to extract every drop of profit from the bull market, believing that they'll magically sell out around the market peak. More experienced hands will tell that life just isn't that easy. I have no confidence in my ability to precisely time the market and as with the Bitcoin example above, a degree of precision is often required.
We see plenty of amber lights warning us that we are approaching the latter stages of this bull run, and that we are somewhere around the marked spot. There are few red lights to suggest that the peak of this bull market is nigh. The medium term return outlook justifies our cautious positioning and if we can identify some red flashing lights, we will dial down the risk in our portfolios and turn defensive.