036: Investment Wisdom You Can Bank On, Part 3

Sir John Marks Templeton (November 29, 1912 – July 8, 2008) was an American-born British stock investor, businessman, and philanthropist. He is credited with giving this investment wisdom in February 1994: “Bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria.” Today, Dustin R. Granger, CERTIFIED FINANCIAL PLANNER™ and I break down exactly what that phrase means, and how it can help show what is happening in the financial market!

Here’s What You’ll Learn [1:22] Who was Sir John Templeton? [3:15] Bull Market explained [3:45] Bear market explained [5:00] Bull markets are born on pessimism... [8:00] ...grows on skepticism... [9:15] ...Matures on optimism... [11:00] ...Dies on euphoria [14:30] Toujours Worth Software - Guided Wealth Portfolios [16:10] Worth It Inspirations “Bull markets are born on pessimism…

Bear markets/sentiment always bottom at some point and this creates a perfect entry to buy a stock at the cheapest price possible. The first rule of investment is “Buy Low and Sell High”, but many people fear to buy low, because of the fear of the stock dropping even lower, then you may ask “When is the time to buy low?” The answer, according to Sir John: When there is maximum pessimism.

...grow on skepticism…

Even when the market starts to rise, people are often skeptical. This can’t be real, another drop is headed our way, watch out for the double dip, don’t invest. Ever heard these things before? That’s skepticism talking. This may also be the point when there are more investment options, since many people are hesitant to invest, for fear of the bottom falling out. If fortune favors the bold, then boldly invest, in spite of the skepticism.

...mature on optimism...

“Bull Markets...Mature on optimism” may be the easiest stage to recognize. The talking heads are optimistic, everything seems to be growing steadily upwards, and people have a positive outlook on investing. In fact, people start volunteering more of their wealth towards investments. If the market was represented by a clock, maturing on optimism would place the hands around 9-10pm. Remember though, while everything is optimistic, stock prices may be higher, so if you are considering investing, it’s wise to turn it on autopilot, and not let something “shiny” distract you.

...and die on euphoria

The reason that bull markets die of euphoria is that market prices, particularly in the “momentum” stage of the investing cycle, are based on the assumption the current cycle will continue into perpetuity. Earnings, the economy, sales, etc. will continue to expand in a linear fashion…forever. Since the economy, as well as virtually everything in life, is cyclical, it is only logical that eventually, the disappointment of those assumptions sparks the beginning of the next bear market cycle. How can you tell if this is happening in the market? Dustin says to try and gauge the emotions of everyone around you. What is being said around the break room or by the talking heads? What is the prevalent emotion? Remember, the best thing you can do is have a clear plan, create a system and stick to it!

Resources & People Mentioned Toujours Worth Software - Guided Wealth Portfolios The Handmaid's Tale Jealous Guy - John Lennon Connect With Danielle and Dustin Ask your questions! On Facebook On Twitter Connect with Dustin on Twitter: @DRGranger