🔹Bull markets make it easy to make money, which attracts inexperienced investors 💵
🔹These inexperienced investors are drawn to low-quality stocks , momentum stocks and bad IPOs.
🔹Investing in momentum stocks leads to higher valuations and low quality stocks trading at higher multiples. This leads to overvaluation in the market.
🔹Markets have a period of poor returns known as bear market and rationalisation of high multiple business to lower multiple.
🔹Bear markets bring about extremes in the market giving rise to smart investors.
🔹Smart investors take advantage of the bear markets to invest in quality stocks creating the start of a new bull market.
🔁And the cycle continues in the stock market.