The Effects Of A Bull Market
1) Delusion - May cause most investors to think that they are smarter than what they really are. A prolonged bull market may even cause some to elevate oneself to demi-god status. A normal market is like sitting for a test and answering an objective test with 4 choice answers, one of them being the correct one. A bull run is like sitting for the same test the only difference being three out of four choice answers happens to be the correct answer.
2) Coverting Temporary Events Into Annuity - All of a sudden some investors will find that they are making 5,000-20,000 a week. All at once, the investor will turn into an actuary specialist and calculate the fresh stream of income as an annuity (prolonged consistent rvenue for the longest time). This will give rise to euphoria in mind and cause the person to spend the net present value of the annuity in leveraged format.
3) Experts' Predictions - You can sift out the good experts and the merely qualified ones. When the market was at 900, they will predict a high of 1,000 over the next 12 months. When the market reaches 975, they will upgrade their 12 months forward target to 1,080. Now at 1,120 you will find them marking 1,200-1,250 as the high for 2007. That is not predictions, that is anchoring & adjust, a simplified way of decision making. A real prediction is someone who will dare to predict 1,100 when the market is at 900 and says that is reachable within 12 months. You can easily tell the better ones, don't be fooled just because they get their pictures in the papers. The essence lies in their grasp of the overall Big Picture. If their grasp is weak, they will not dare venture beyond the "safe zone" (i.e. anchor & adjust). However, if their grasp is good, they will be able to convince you with good solid arguments and pieces most of the important jigsaw together to forma coherent cause & effect storyline. You will know its good cause it will be persuasive.
1) Delusion - May cause most investors to think that they are smarter than what they really are. A prolonged bull market may even cause some to elevate oneself to demi-god status. A normal market is like sitting for a test and answering an objective test with 4 choice answers, one of them being the correct one. A bull run is like sitting for the same test the only difference being three out of four choice answers happens to be the correct answer.
2) Coverting Temporary Events Into Annuity - All of a sudden some investors will find that they are making 5,000-20,000 a week. All at once, the investor will turn into an actuary specialist and calculate the fresh stream of income as an annuity (prolonged consistent rvenue for the longest time). This will give rise to euphoria in mind and cause the person to spend the net present value of the annuity in leveraged format.
3) Experts' Predictions - You can sift out the good experts and the merely qualified ones. When the market was at 900, they will predict a high of 1,000 over the next 12 months. When the market reaches 975, they will upgrade their 12 months forward target to 1,080. Now at 1,120 you will find them marking 1,200-1,250 as the high for 2007. That is not predictions, that is anchoring & adjust, a simplified way of decision making. A real prediction is someone who will dare to predict 1,100 when the market is at 900 and says that is reachable within 12 months. You can easily tell the better ones, don't be fooled just because they get their pictures in the papers. The essence lies in their grasp of the overall Big Picture. If their grasp is weak, they will not dare venture beyond the "safe zone" (i.e. anchor & adjust). However, if their grasp is good, they will be able to convince you with good solid arguments and pieces most of the important jigsaw together to forma coherent cause & effect storyline. You will know its good cause it will be persuasive.
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