The 3 stages of Bull & Bear

Busy weeks are following busy weeks lately. I just finished catching up with some of the reading I saved over the past few weeks & came across this “acorn” of wisdom on bull & bear markets. It is an extract from Howard Marks’ most recent memo to his Oaktree investors on March 18, 2008.

Fortunately, one of the most valuable lessons of my career came in the early 1970s, when I learned about the three stages of a bull market:

1. When a few forward-looking people begin to believe things will get better,
2. When most investors realize improvement is actually underway, and
3. When everyone’s sure things will get better forever.

To aid in your consideration of the future, I’ve formulated the converse of the above, the three stages of a bear market:

1. When just a few prudent investors recognize that, despite the prevailing bullishness, things won’t always be rosy
2. When most investors recognize things are deteriorating
3. When everyone’s convinced things can only get worse

We surely are not in a bull market right now. If I were to guess where we are, I would say in the second phase of a bearish market. Which in my view is good – time to start searching for cheap but fundamentally sound markets !