There is something to be said about how people feel when it comes to the financial markets. After all, when we are afraid, the last thing we want to do is risk losing more money. On the other hand, greed is good, and we tend to plow into the markets for fear of missing out on all these supposed returns on offer.
The problem is, after the last bear has sold and every bull has bought, markets tend to go the other way. It is the reason why market sentiment is often used as a contra-indicator. Currently, the readings are firmly positive. In fact, we haven’t had this kind of extreme euphoria, since just before covid, the great financial crisis, and the dot-com bubble.
Of course, things could be different this time, and who wouldn’t get excited at the prospects of world peace, the AI revolution, and the near certainty of Liverpool winning the Premier League? Well, valuations are a bit stretched, we are still paying six hundred quid a month for our energy bills, and it’s not like China hasn’t told us they were going to invade Taiwan.
As such, investors are left with the usual dilemma, and markets could go up or down from here. Shocking as that may be, remember that the difficulty in timing the markets does not come from knowing when to get out, but when to get back in. Missing out on the returns on the way up can be even more painful than the losses we may make on the way down.
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