6Bottoms: The Agony and the Opportunity

I’ll admit that the last chapter is a bit disingenuous. You can only identify a bubble after it bursts. This was particularly true of the 1920s. From January 1920 to September 1929, the market’s total return (dividends included) was an astonishing 20% per year. As sure as night follows day, should not a bust follow such a boom? And yet, as we’ve already seen, the market’s precipitous rise was accompanied by strong economic fundamentals, suggesting a sound basis for the run-up. Further, similar near-20% returns have also occurred during other ten-year periods: from 1942 to 1952, 1949 to 1959, and 1982 to 1992. But none of these was followed by a crash.

Just as markets periodically suffer bouts of mania and ...

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