In the words of Howard Marks: “You can’t predict, you can prepare”. Following the trend might feel like a comfortable thing to do, there is safety in numbers. However, when the cycle ultimately shifts to one of pessimism, share prices will fall. Market timing is unrealistic. The best defense we have against the cycling of the markets is to follow our investment process – to look for undervalued securities, to carry out our due diligence and to purchase those securities that are trading at a discount to their intrinsic value and may well be out of favour.

The securities with the highest risk are, counterintuitively, often those that most market participants are excessively positive about. With enthusiasm comes buying, with buying comes price increases and as share price increases exceed intrinsic value, they become increasingly ripe for a correction. When value metrics become expensive on a relative basis to competitors and the market, we need to consider trimming or selling the holding entirely, especially with close-the-discount ideas. Nothing goes up forever.