
In the last few weeks, I have become more and more persuaded that we are entering the bubble phase of the current bull market. Investing in such an environment is tricky. The opportunities for windfall profits are high – as are the risks of catastrophic losses.
In investing, it is crucial to distinguish between the market and the economy. Too often people make the mistake of equating the two. They assume that if the stock market is up, the economy must be good and vice versa. Same thing for individual stocks.
However, the truth is that the market is its own world. It is a world of perception dominated by professional investors trying to be one step ahead of their competition. (For an excellent recent articulation of this position, see Josh Brown’s “My Edge And The Crossroads”, April 27). In such an environment, the fundamentals often take a backseat to factors internal to the market itself.
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