From: Hal Finney (hal@finney.org)
Date: Wed Jun 11 2003 - 10:53:07 MDT
According to the efficient market theory, there are really no such things
as bull and bear markets. They are optical illusions.
That is, it is impossible at any time to predict whether the market
is going to rise or fall. You can't say "we are in the middle of a
bull/bear market and therefore the market is more likely than not to
rise/fall in the next few months."
You can only recognize bull and bear markets retroactively. When you see
a time when prices tended to rise, you call that a bull market. When you
see a time where prices tended to fall, you call that a bear market.
When prices didn't have much of a trend, you'll say that was neither.
So it doesn't make sense to say, buy stocks during a bull market and sell
during a bear market. That's because it is impossible at any time to say
what the future course of stock prices will be. All you can do is look
back, and with the wisdom of hindsight, say that you should have bought
here and sold there. But that's not a way to make future decisions.
These observations are based both on theory and practice. I studied
some of the academic literature several years ago, and statistically
they found virtually no correlation between past price changes and future
price changes.
Hal
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