Market Peaks and Troughs; How It Seems to Work

It doesn't seem to just go down, down, down, and then up. Nor up, up, up, and then down. What seems to happen, rather, is that you have these moments of congealing hope or fear, and they form a plateau or a small reversal. It was going down, but then it went down to the point where a critical mass of people said, "This is overdone," and they bought -- stock, real estate, or some other asset. Or it was going up, and then a sufficiently large number of people said, "This is a bubble," and they sold. To get a truly stunning downturn or upturn, it seems you must first iron out the kinks. You must persuade that temporary minority, optimistic in the face of danger or pessimistic despite hope, that they are wrong -- that things are really as good or bad as that group did not want to believe. You have to let that temporary minority make their investments, indulge their beliefs, and lose their shirts. Then they drop out or become converted. After you have hammered the dissenters several times, it's smoother sailing. Your market is better positioned to soar or plummet. Next time around, people will be more cautious about opposing the apparent trend. You will see more of a rise or fall than previously, before you reach that critical mass of people who once again say it's overdone or it's a bubble. This doesn't last forever, and it doesn't happen every time. You actually have to get quite a few ducks in a row before you can expect, with any confidence, that the dissenters will be hammered into submission. I'm not sure how it works with upturns, but what seems to be required at the start of downturns is that everything is just about as good as it could possibly be. If all sectors seem to be cruising and the world is looking fine, then possibly all you need to do is to inquire more carefully into whether the market seems to be irrationally disregarding bad news or good news. And yes, all those economists really can be wrong.