Fear, Greed, and the End of the Rainbow: Guarding Your Assets in the Coming Bear Market

Sarah Robertson is the trade, scholarly, and reference editor of the
Canadian Book Review Annual.

The market career of the late Andrew Sarlos, known as the “Buddha of
Bay Street,” began in 1974, “in the depths of a devastating bear.”
From an initial stake of $250,000, he was able to amass over $20
million.

In this book, Sarlos debunks the new-era (or “This Time It’s
Different”) thinking that predicts a continuation, at least in the
foreseeable future, of the forces that have powered the U.S. and
Canadian bull markets since 1982. Sooner or later (and more likely
sooner), he warns, the hitherto rewarding strategy of buying on the dips
will backfire. “The coming bear market will not be a ‘correction.’
When it comes, it will be a tidal wave, carrying everyone with it.”

Sarlos’s conviction that we are in the final stages of a speculative
bubble derives in large measure from his analysis of previous bull
markets. Many of the warning signs that preceded earlier crashes—IPO
fever, mutual-fund mania, massive stock buybacks, elaborate
rationalizations of sky-high valuations, and volatile markets—are
present today. A proponent of such technical models as Dow Theory and
Elliott Wave Theory, Sarlos believes that the catalyst for the next
crash will be market psychology rather than economic factors.

His prescription for surviving the anticipated—at least by
him—bear?: “[U]nlearn everything you’ve learned during your
investing career.” Some of Sarlos’s specific survival
strategies—seeking refuge in gold, for instance—have been sharply
undermined by recent events. Whereas he expected North American markets
to crumble first and possibly trigger a crisis in other global markets
(including southeast Asia), the precise reverse has come to pass: North
American markets are trembling at the prospect of catching Asian flu.

Sarlos may be less than accurate in some of his forecasts, but this by
no means invalidates his broader arguments. His book—which contains
particularly interesting discussions of the inflation–deflation debate
and of the efficient-markets hypothesis—should be read for its
analysis, not its prognostications.