The general state of business thus does not forecast the course of stock prices except in the apparently paradoxical fashion that great prosperity affords an advantageous time for selling stocks, extreme business depression an opportunity for purchase.
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Just as in the realm of pugilism, a few years of soft living will make a Dempsey easy prey for a Tunney, so a period of prosperity contains the seeds of its own destruction.
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As a rule, Panics do not destroy capital; they merely reveal the extent to which it has been previously destroyed by its betrayal into hopelessly unproductive works.
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My experience teaches me that by far the largest losses have been sustained by investors through buying securities of inferior quality under favorable general conditions.
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Every economic recovery since World War II has been preceded by a stock market rally. And these rallies often start when conditions are grim.
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The stock market has a 100% record, in the last 50 years, of predicting upturns in the economy. It’s never been wrong. It’s less than 50-50 on a downturn.
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