One of the stranger things about the stock market’s current desolation is the game of “find the bottom.” A market bottom, we’re told, arrives only when the last bull has expired and the last optimistic investor throws in the towel. This is known as “capitulation.” Once the market has achieved capitulation, then it can turn around and begin climbing again.
But the very act of saying “We’ve hit bottom, now I’m going to invest again” means that you are not capitulating, and therefore the bottom hasn’t yet arrived. So, paradoxically, there is no bottom as long as someone thinks there’s a bottom. Only when everyone believes that the market is just going to keep dropping, and hasn’t hit bottom yet, has a bottom been truly reached. Of course, at that point there’s no one left to buy and start the turnaround.
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