Value investing doesn’t do as well when the punch bowl is spiked with euphoria and everyone only looks up. It is when the punch bowl is taken away and investors start looking down that value investing, or simply common sense, does well.

What I call the Cowardly Lion market, whose occasional bursts of bravery lead to stock appreciation, but are ultimately overrun by fear that leads to a subsequent descent.

Cyclical bull markets teach us not to sell, while cyclical bear markets teach us not to buy. If you let the market tell you what to do, you have no process.

P/E compression and earnings growth work against each other, resulting in zero (or nearly) price appreciation plus dividends, though this is achieved with plenty of cyclical volatility along the way.

During range-bound periods, P/E compression acts like gravity pulling stocks downward, while earnings growth provides counteracting force. The benefits from earnings growth become gradually offset by ongoing P/E compression. Stocks move sideways for extended periods during this process.

Secular bear markets emerge specifically when above-average valuations combine with long-term economic contraction. In secular bear markets, economic decline prevents earnings growth from offsetting P/E mean reversion; deteriorating earnings compound P/E compression, driving extended stock price declines.

Secular bull markets begin at low, below-average P/E ratios. Combined earnings growth and P/E expansion — essentially mean reversion — produce spectacular returns, creating jubilant investors who drive valuations above average.

One constant remains: human emotions drive overexcitement about stocks, pushing valuations above average, subsequently creating underexcitement and range-bound market periods. Without emotional influence, stocks would consistently reflect their value levels (approximately P/E of 15), eliminating secular cycles.

A market that goes up and down, with a lot of cyclical volatility, but ends up going nowhere for a long time.