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so i'm going to sum up on the subject of cycles by taking you through a typical one and i hope this is helpful on the way up let's say so we start off and there's been a bad experience and we're at a low point and then things start to head up and on the way up economic fundamentals are improving and earnings are increasing and beating expectations and the media are reporting only good news because that's what they do and as a result investor expectations for the future rise psychology gets stronger people perceive only favorable developments capital is readily available asset prices rise the holders of assets are happy and want to buy more and the people who haven't been in the market are unhappy because of jealousy and begin to buy everybody wants to buy nobody wants to sell risk aversion evaporates and what do people say they say risk is my friend the more risk i take the more money i make and any anyway i don't see much to worry about and when that becomes the case then prices go too high and eventually we reach something that investors professionals call a top the top the maximum the price be which beyond which the market will not go and at the top asset prices are high prospective returns are low or negative and risk is high this is the time for caution but most people are unable to be cautious at the top since the high in prices corresponds with the high in emotion no one's willing to bear the risk of selling and missing out on the future gains and that's human nature eventually the top is passed and now we're on the way down excuse me and on the way down economic fundamentals deteriorate earnings decline and fall short of expectations and the media report now only bad news and as a result investors expectations decline psychology gets weaker people see only undesirable invest developments asset prices fall holders of assets are chagrined and sell and the people who haven't held assets pat themselves on the back for their wisdom but of course refused to buy now risk aversion grows and investors flee from risk saying bearing risk is just another way to lose money i don't care if i ever make a euro in the market again i just don't want to lose any more get me out and the worse things go and the lower prices go the more people want to sell and that's human nature all you have to do is understand human nature and at the bottom asset prices are low and prospective returns are ultra high and risk is low this is the time to be aggressive in the market but most people are terrified at this point because the low in prices corresponds with the low in psychology and they just can't move ahead because they're depressed and they're cautious so that's a cycle and you can see how the events conspire to cause people to do it wrong there's nothing that says sell at the top other than your own mentality and there's nothing that says buy at the bottom and we see this all the time but this is human nature and it'll never change now the subtitle of the book is getting the odds on your side and that's very important we never know what the future holds remember what i said you can't do anything which is sure to be right or or or anything close to certainty all you can do is get the odds of a favorable future on your side so the way i think of this and this is described in the book at length because i think it's important is the future is like a lottery there's a bowl and it's full of lottery tickets and the lottery tickets are the possible future outcomes and there are many of them and it's because there are many possible future outcomes that the world is uncertain and investing is risky and something fate or whatever you want to call it reaches into the bowl and pulls one ticket all the tickets in the bowl are the possible outcomes and the one that is selected is the actual outcome and we never know which one it's going to be you reach in the bowl you get a ticket it could be any of the tickets in the bowl and there are many now does that mean that we can't know anything about the future that we can't deal intelligently with the future and no it doesn't mean that what we can know is the mix the character of the tickets in the bowl sometimes there are a lot of good tickets and not too many bad ones and sometimes there are a lot of bad tickets and not too many good ones so you want to invest when the odds are in your favor when are the tickets in the bowl most favorable when are the odds in your favor when we're at a low when are the tickets in the bowl unfavorable when are the odds against you when we're at a high so the question is can we figure out the difference
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