The Most Expensive Phrase

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“The four most expensive words in the English language are, ‘This time it’s different.’”
– Sir John Templeton (1912-2008)

“The second-most-expensive words in the English Language are, ‘Too Far, Too Fast.’”
– Mark Leibman (1956-2076)

We write extensively about cycles because understanding them is a critical talent for successful investing. Here is how the famous quotations above fit into our understanding.

“This time it’s different” refers to the tendency to believe that an unsustainable trend will continue. Some circumstance or reason makes people think that the forces which normally cause a trend change do not apply. In practice, it usually happens most often when a type of investment has gotten to the bubble stage—irrational pricing and large flows of money. You could hear these words at the peak of the tech bubble in 2000, the real estate bubble in 2007, the commodity bubble in 2011, et cetera. And there are always stories that go along with the expensive words, a tale that explains exactly why “this time it’s different.”

Recently, though, we’ve heard from many quarters that certain investments have gone up “too far, too fast.” Pondering this phenomena, we’ve concluded that “too far, too fast” is a mirror image twin of “this time it’s different.” Where one is used at the peak, the other begins to appear shortly after the bottom is reached—after the crash.

For example, crude oil fell from $140 years ago to $28, then recovered to $43. To put this in perspective, oil fell 80% and after a rise it was still down 70%. Nobody knows the future, of course, but the “too far, too fast” crowd thinks oil needs to go back down. Oil fell because of booming supply and sluggish demand—a glut. But every glut plants the seeds of a shortage. The “too far, too fast” crowd isn’t paying attention to the changing fundamentals of the market: the inevitable cycle.

The stock market has mounted a vigorous rally, up from the February lows, and we hear “too far, too fast” about that as well. Yet, putting the move into perspective, the market is still below the highs reached nearly a year ago! Too far, too fast—my foot!

We must note that “two steps forward, one step back” has not been repealed. The markets go up and down. But people who sold out of the market over fear of a downturn are sitting on cash, failing to reinvest. Why? “Too far, too fast.” As you know, our principles and strategies prevent those kinds of problems.

One of our roles is to help you avoid two of the expensive actions that afflict others: hanging on through a bursting bubble, and failing to take advantage of bargain prices. Please call or write if you have questions or comments about the current markets and your situation.