(Continued from an earlier related post)

 

 

"...if you're going to have to pay for a child's college education in two or three years, don't put that money into stocks. Maybe you're a widow and your son Dexter has a chance to get into Harvard, but not on scholarship. Since you can scarcely afford the tuition as it is, you're tempted to increase your net worth with conservative blue chip stocks. In this instance, even buying blue-chip stocks would be too risky to consider. Absent a lot of surprises, stocks are relatively predictable over ten or twenty years. As to whether they're going to be higher or lower in two or three years, you might as well flip a coin to decide.

"In the first stage of an upward market-one that has been down awhile and that nobody expects to rise again-people aren't talking about stocks. In fact, if they lumber up to ask me what I do for a living, and I answer, "I manage an equity mutual fund,", they nod politely and wander away.

 

...When ten people would rather talk to a dentist about plaque than to the manager of an equity mutual fund about stocks, it's likely that the market is about to turn up."

 

 

"In stage two, after I've confessed what I do for a living, the new acquaintances linger a bit longer-perhaps long enough to tell me how risky the stock market is-before they move over to talk to the dentist. The coktail party is still more about plaque than about stocks. The market's up 15 percent from stage one, but few are paying attention"

 

"In stage three...a crowd of interested parties ignores the dentist and circles around me all evening. A succession of enthusiastic individuals takes me aside to ask what stocks they should buy. Even the dentist is asking me what stocks he should buy"

 

 

"In stage four, once again they're crowded around me-but this time it's to tell me what stocks I should buy. Even the dentist has three or four tips, and in the next few days I look up his recommendations in the newspaper and they've all gone up. When the neighbors tell me what to buy and then I wish I had taken their advice, it's a sure sign that the market has reached the top and is due for a tumble"