Wednesday, January 6, 2010

This Hated Bull Market

Really, with the possible expceptions of Jim Cramer and Larry Kudlow, NO ONE seems to be comfortable with the rally in the market for the past six months. A blindingly smart advisor, Tim Collins of TangleTrade Management, wrote on the Real Money Silver site what I thought was the best explanation for the average investor's current trepidation:

Why aren't people more bullish? Let's say you hand someone a drink. They take a drink, and it tastes so nasty that they have to struggle just to swallow it. You apologize. You say it was just an accident. Go back in the kitchen, and grab them another drink. They hesitate for a moment, then take a big gulp. Blech...yuck! This one tastes worse than the first one, and they spit it out all over their shoes. Again, you apologize, and go back the kitchen to get them another drink. Now how do you think they will react? Are they going to gulp it down? Even if they watch you get it, they won't. They will sniff it. Swirl it in the glass. Stare at it. Sniff again. Maybe even take a little sip. Even if the sip tastes fine, they will still be hesitant to take a big drink. It will take lots of small sips before they feel comfortable again. And it will take awhile before they trust you to get them a drink again.

It is psychology. It is distrust. The internet bubble. The housing bubble. The 2008-early 2009 market. These were some pretty nasty drinks. You simply cannot regain the trust that the individual investor lost in the short of a timespan. You can pound the table all you want, and tell everyone how good the drink is. It won't matter.

Makes sense to me.

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