Dow 20K and Peter Lynch's Market Phases

Hello, Fellow investors!

I was waiting for this: a piece on CNBC from January 4 details the notion that people are starting to notice the market’s rise and, more importantly, are starting to feel that they’re missing out:…

This notion immediately called to my mind Peter Lynch’s “Cocktail Theory” from his seminal book “One Up on Wall Street”, in which he details four distinct phases of a bull market and how to know which part of the market you’re in (paraphrasing):

Phase 1 (beginning of a bull market): People at a cocktail party, when you tell them you’re a fund manager, either walk away or change the subject.

Phase 2 (market has risen 10-15%): People at the cocktail party stay a little longer when you tell them you’re a fund manager, but just long enough to tell you that the market is risky.

Phase 3 (market has risen 30%): People at the cocktail party are happy to hear you’re a fund manager and ask advice about what to invest in.

Phase 4 (beginning of the end): People at the party tell you, the fund manager, what you should be buying.

I will refrain from postulating about where we are in the current market cycle but it may be interesting to exchange opinions, and more importantly, keep Lynch’s theory in mind when considering when to trim or exit positions.

Thank you, everyone, and Saul especially, for your continued guidance and entertainment!


New Link…

1 Like

I think we are in Phase 4

Don’t know how long it will last though…that’s been the characteristic of this market - such a hard fall in 2008-9 and an anemic recovery ever since with a very mature market and emerging markets less a growth vehicle than in the past

so we could sit here for a while…