By Jerry Wagner Even with new variants of COVID, the tradition is hard to end. Last year, many firms abandoned the company Christmas party due to state-mandated shutdowns and a virus-frightened populace. But this year, tradition won out, and the holiday party was reinstated. Flexible Plan had its holiday party on Friday night. So far, the reviews have been outstanding. But as our partygoers ate, drank, and made merry, a thought crossed my mind. Having just reviewed the market closing figures for the week that had ended, I realized how similar the holiday celebration was to the life cycle of a bull market. Here in Michigan, the party began with celebrants braving cold, icy winter winds as they exited their cars for the event. They stomped the remnants of an early snowfall from their feet and extricated themselves from their heavy winter coats. They were ready to have some fun. I remember the feeling in March 2009. Everything appeared to have bottomed out in the stock market. There had been a year-end head fake, but it seemed to be the real thing this time. We could shake off the snow and ice of the frigid 2007–2008 bear market and let the party begin. A taste of what was to come. The revelers mounted the stairs or employed the elevators and reached the mezzanine where cocktails were served. A jazz combo strummed out a pleasant background melody. Conversations began tentatively. Co-workers that had not seen each other in months greeted each other as they balanced a drink in one hand and an appetizer in another. The same actions play out in the early days of a bull market. Often the price moves are tentative. Market participants search to find the new market direction and hesitantly stick their toes back into the investment waters. “Dinner is served!” is the announcement. Hunger sensors in the brain are signaled. The partygoers sit down to dinner. Fuel for a new rally is provided as stocks move higher. The market breaks out to its first new high, following its market-bottom lows. Sometime after the first bites of tenderloin and salmon, the band begins to play. Some holiday tunes and soft-rock strains blend with the chatter of the diners lingering over their meals. A solitary couple ventures onto the dance floor. After a few turns around the floor, they are joined by many others. Momentum fuels the market to soar to new heights. More and more investors join the early movers. The success of one motivates others, and soon prices are chasing each other higher and higher as the bull market advances. This phase can persist for a long time and provides the underpinning for the success of momentum investing. After being the center of attention for a good part of the evening, the dance floor starts to clear. Early birds begin to leave. Snacks are served, a reward for staying longer. And as the bull market ages, gains start to be harder to find. The acceleration of price advances slows and periodically pauses, as momentum needs to be refueled by new and different versions of the bull market story. Then it’s “last call” at the bar. Soon after that, many of the revelers begin to don their protective winter clothing and head for the door, anticipating the frigid landscape that awaits them. But the party continues. In an October 1955 speech , Fed Chair William McChesney Martin Jr. addressed a group of investment bankers. He declared, “The Federal Reserve … is in the position of the chaperone who has ordered the punch bowl removed just when the party was really warming up.” Forever thereafter, the punch bowl analogy has been used to describe the Federal Reserve’s initial actions to slow down the economy to fight inflation. In November, present Fed Chairman Powell declared his intention to commence (and then speed up) tapering the Fed’s asset purchases in the open market. With that declaration, it became clear that the proverbial punch bowl was being removed. It’s the “last call” from the Fed bartender. “Last call” does not end the party. There’s always the last dance. While the “last call” often sends participants home and stocks initially lower, the party continues for many celebrants. A final selection or two from the band motivates more partygoers to get to their feet for one final twirl. A rally or two commences, but there are usually fewer dancers on the investment dance floor to enjoy the last beats of the bull market’s siren song. And then the party’s over. The lights come up, and the band breaks down their instruments and heads home. Late-staying partygoers may need assistance. Rides are called to get them home. A new bear market or, at least, a correction begins. All good things come to an end, they say. But it’s all part of the many cycles that engage us throughout our lives. The good times are often followed by bad. The peaks frequently lead to valleys. It’s the dilemma of the buy-and-hold investor—they take two steps forward, but they have to be prepared to take a step or two backward as well along the way. Dynamic, risk-managed investing is built upon realizing that the financial markets follow a cycle. They do not just go straight up to the heavens. Strategies that defend and are positioned to take advantage of those cycles deserve to be a part of every investor’s portfolio. It’s Christmastime, a time when many of us celebrate a new beginning. But we know that harbored within that beginning were seeds that would bring a time of testing, a time of both good and bad days that would finally be rewarded with the coming of a new covenant. Merry Christmas to all! Each of us here at Flexible Plan Investments wishes you a joy-filled holiday season. May health and prosperity be yours in the days ahead.