Article from Jan 2000 by John Hathaway:
I have always operated on the thesis that I don't have to know what is going to happen to make good investment choices. Just avoid the clearly horrible choices.
Practically speaking I interpret that as buy the best assets in hated classes. It is hard to do, as I am bottom-fishing, and most times wind up with good size paper losses early in the program. After all, the asset class has to have been going down, or it wouldn't attract my attention. But I can't change anything about the fundamentals for the class, or the popular psychology involved.
But glut becomes scarcity, and hatred becomes passion. Not as regular as night and day, but still bankable.
For me the big challenge is what to do when the formerly reviled assets have been revalued to some extent. It is usually easy for me to hold my original shares, because I have seen and in some cases profited from so many rags to riches transformation.
But to get really rich from one of these generational revaluations I think it is necessary to buy some more of the formerly washed out investment at intervals. But this is a lot harder for me, as I think it might be for any Wal-Mart type of guy. The idea of paying more for something than I paid one year ago seems immoral.
I haven't worked this out yet. Maybe a little study of (ugh!) technical analysis would help. In classes like energy, I could probably get data about mutual funds inflows into energy or natural resource funds, and use it as a contrary indicator.
I have a 45 year old image in my mind which is my guide in speculative markets. (IMO, all investment markets are speculative markets) I was sitting at a professional wrestling match with my brother. In the front row ahead of us, someone had thought it a good idea to bring patients from a home for the retarded. I think they found the match pretty boring overall, but from time to time one of the wrestlers would start bleeding, or screeming, or throwing his opponent repeatedly on his head. This would transform the guys in the seats in front. They would start screaming and beating on one another, and keep it up until the stimulus in the ring cooled off.
My market guide is buy when the guys are asleep, sell when they are so excited that they are beating the hell out of one another.