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South African investors who are smiling all the way to the bank with the JSE All Share Index continuously hitting new highs, may want to keep an eye on Chinese policy makers who recently started moves to weaken their currency. This may be the first step in the bursting of the equity bubble and the start of a slow-down in China which will directly impact South African companies and their profits.

In my view, investors should be thinking very seriously about the extent of potential market losses over the completion of the present market cycle. It is the wrong question to ask “where else am I going to put my money with short-term interest rates near zero?” The problem with that question is that it carries the implicit assumption that the expected return on stocks is even positive or adequate given the prospective risks. At present, the better question is “do I prefer a zero loss to the prospect of a 40-60% interim loss in a market that is strenuously overbought and overbullish, and has returned to valuations that are more than double reliable historical valuation norms?”

On Friday, our estimate of prospective 10-year S&P nominal total returns set a new low for this cycle, falling below 2.2% annually. This is worse than the level observed at the 2007 market peak, or at any point in history outside of the late-1990's market bubble. It's possible that investors could drive prospective returns even lower than they are now, and valuations even higher than they are now, as investors did during that bubble. Still, even that advance started to be punctuated by abrupt vertical declines or "air pockets" once overvalued, overbought, overbullish features emerged (recall for example the increasingly frequent and distinct peak-trough corrections of 10% or more in Oct 1997, Jul-Oct 1998, Jul-Oct 1999, Jan-Feb 2000, Mar-Apr 2000, and Sep-Oct 2000 even before more severe losses got underway). See Setting the Record Straight for a general review of current valuations and prospective returns.

If your answer is still to take your chances in stocks, my only hope is that you do it consciously, fully aware that you’ve decided to ignore or discount the lessons from a century of historical evidence. The simple fact is that somebody has to hold stocks at present levels, so there’s really no point in trying to convince others to embrace our concerns, or to answer every second-guess that presumes that “this time is different.” I’ll be quite happy if at least stocks are being held by those who understand the full narrative of the recent half-cycle, and have seen, considered, and discarded our work.

"Well bought is half-sold. it takes a lot of hard work or a lot of luck to turn something bought at a too-high price into a successful investment. There aren't always great things to do, and sometimes we maximize our contribution by being discerning and relatively inactive. Patient opportunism - waiting for bargains - is often your best strategy."

Almost 100 percent of investors think we’re at the start of a long recovery,” Edwards said. “It’s already a long recovery. Forget about starting from here.