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Excess Returns: A comparative study of the methods of the world's greatest investors by Frederik Vanhaverbeke

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CHAPTER H

THE BOOM-BUST CYCLE

“It is the emotional nonprofessional investor who sends the price of a stock up or down in sharp, sporadic and more or less short-lived spurts. The professional investor has no choice but to sit by quietly while the mob has its day, until the enthusiasm or the panic of the speculators and nonprofessionals have been spent.”

J. PAUL GETTY (KRASS, 1999)

THE STOCK MARKETS move in cycles that typically last a few years. Each cycle consists of a bull phase (where the market rises by at least 20% from a previous market bottom), and a bear phase (where the market loses at least 20% from a previous market top). Even within these bull and bear markets, stocks seldom move in one straight direction. Bulls and bears are actually ...

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