It has been some time since I have had to deal with an overbought Bull Market, so I thought it would be a good time to revisit this opportunity. The grand super-cycle Bull Market lasted from 1974 to 2000, and the only remembrance is how wonderful those years were with less stress. That is a misconception, as glorious as it was in hind-sight it was filled with stress and fear. In fact there were many times during this period that like today the investor bought bonds or gold or whatever seemed risk-free. Investors did not even become convinced that stocks were a good investment until sometime after 1994-95.
Since I started in this business, I soon realized by that my so called experts were always going to be part of the problem citing worries at market bottoms and rewards at market tops. Being an amateur market historian I figured very early in my career that buying when the public is most depressed and sell when they are the most euphoric. It soon became very clear that market bottoms were formed by psychology and is the most reliable measure. So as we worry about taxes, debt payments, U.S treasury downgrades budgets, politics, fiscal cliff, etc, BULL MARKETS DON’T END UNTIL MONETARY CONDITIONS MOVE TO THAT STAGE WHERE THE BULL MATKET LOSES ITS NEEDED FUEL.
Therefore, even if the market is a little overbought here markets can stay overbought for a long time and trying to market time an entry point reminds me of the old saying “a fool and his money are soon separated”. Valuations of stock prices are still cheap and our analysis produced a 22% undervaluation based on historic conditions.