Market Booms—and Busts

Investing appears to be a quantitative topic, but it's rarely just about the numbers.

In The Four Pillars of Investing, William Bernstein writes:

“...the most profitable thing we can learn from the history of booms and busts is that at times of great optimism, future returns are lowest; when things look bleakest, future returns are highest.”

This observation may seem fairly obvious, but it bears repeating. That’s because it can be so hard to implement.

When the market is low, as Bernstein notes, things will look bleak. At times like that, it can be very hard to be optimistic, even though that's the time when it would be ideal to be an aggressive buyer.

And when the market is high, and everything looks terrific, that's when it's hardest to be conservative.

That's why I think this observation is important, as straightforward as it is.