Waving the Warning Flags

The eternal truth in the investment world is that every asset class goes
through boom and bust cycles, which typically last for several years.
However, it is ironic that toward the end of any bull-market, when the
risk is extreme, optimism toward the booming asset-class is usually at a
record-high. On the other hand, during the final phase of a bear-market,
when the downside risk is limited, the asset that is selling at a huge
discount is always neglected and hated by the public. The reason for this
irrational behavior is that most people find it hard to foresee and accept
change. The conditions that have been prevalent for a long time are
considered to be permanent, and investment decisions are made accordingly.

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