Wish you and your family a happy new year. Hope you had a good time welcoming it.
Readers familiar with Citadelle’s approach to markets would have concluded us to be very factual and objective by nature. It was a conscious choice in order to see through the smog of market noise by way of news, its interpretation and the grandstanding that follows in the name of conviction. We look to laws of nature in inspiring us and guiding us. And for now, the object of contemplation is the working of a pendulum. Which also reminds us of a famous quote by Jason Zweig.
“The market is a pendulum that forever swings between unsustainable optimism (which makes stocks too expensive) and unjustified pessimism (which makes them too cheap). The Intelligent Investor is a realist who sells to optimists and buys from pessimists.”― Jason Zweig, The Intelligent Investor
Ever noticed how at a certain point to the extreme, the pendulum is in a state of suspended animation. For a moment you can neither be sure whether it is going to go further ahead, pause or retreat. This point is associated with no more kinetic energy that helps it move further and all gravitational energy that makes it retreat. We may be reaching such a point where the sentiment led valuation momentum is approaching zero and earnings become the only gravitational focus. Liquidity has been the length of this pendulum that may have allowed it to swing too far, but then even an elastic rope has a finite length.
We do believe that earnings will improve even if on a low base and we do believe that valuations will revert to mean for sure by a decisive combination of price and time correction. 2018 seems set to be a roller coaster. Be prepared.
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