There are two great market certainties. The first is that it will go through a cycle of ups and downs. There will be bull markets and bear markets, euphoria and despair.
The second great certainty is that no one will be able to time those cycles of ups and down with any great degree of precision.
Nearly all market participants accept the idea of a cycle of ups and downs, but many embrace the conceit that they can accurately time when they will occur. Despite the fact that no one in the history of the market has ever predicted the twists and turns over the course of many years, many still believe that they know what will happen and when.
The current market is a great example of these two certainties. There is absolutely no doubt that this bull market cycle will eventually come to an end and that a painful correction will eventually occur. It is as certain as night follows day -- and because it is so certain, many people are going to try very hard to predict when.
The inevitability of cycles is what makes many market participants so confident that they can predict the future. They know they will eventually be right, so they just keep on trying to predict when the trend will reverse -- and sooner or later, they will be on the right side of the action again.
While it may be empowering to embrace the idea that we know the future, the problem is that trying to time it with precision is extremely costly. In the current market, the vast majority of market timers have been premature and as a result, they have been sitting in cash or shorts for quite a while and suffered huge opportunity cost as the indices trend into the stratosphere.
To navigate the market effectively, we need to embrace both of the great certainties. We should be very aware that the cycle will turn, but we should also acknowledge that we can't predict exactly what will occur. They are conflicting issues and the only way to deal with both is with a very high level of vigilance. We must continually look for clues that the cycle is coming to an end, but also acknowledge that we will not predict the actual turn with any great level of accuracy.
On Friday morning, the trend, once again, continues higher. The indices are set to open at new all-time highs as market players wonder how they can possibly keep buying a market that is as technically extended as this one. The good news is that there is still some stock picking to be found, but prudent entry points are becoming very rare.
Embrace the idea of the inevitability of market cycles, but also acknowledge that we are helpless to predict exactly when they may occur.