Markets Over–Shoot

Experienced investors know that markets often overshoot, both on the upside and the downside. Looking at price charts, these show up as parabolic moves in either direction. This merely reflects the tendency of people to collectively get over-enthused or succumb to fears. It is sometimes referred to as the madness of crowds. One thing that investors can always count on is that people will always be people. That is why certain reactions repeat themselves throughout history.

Perhaps, the stock market overshot to the upside last year. The correction this year also looks to have overdone to the downside, especially in certain categories associated with high growth. Look at some price charts for examples in this category. They show spikes in both directions. Extremes, especially on the downside provide opportunities for ordinary investors. These are assets on sale.

Obviously, one must separate true value from the fall of companies that should never have been priced at such lofty valuations. Smart investors realize that the good get pulled down along with the over-priced. The sorting process is underway. No one may know when recovery will begin. However, you can be certain that one will emerge – people are people. Stay steady my friends.

The Lonely Bull