There are times when investors should be more aggressive and times to be more conservative. History clearly shows that most investors mistime their aggression. They are scared to invest when the opportunities are greatest and eager to invest as the opportunities dwindle.

Investors have been overly cautious during most of the bull market, and worried more about preserving capital than searching for opportunities. Individuals invested for “safe” fixed-income instead of equities, and institutions underweighted public equity for more expensive absolute return strategies. Chart 1 demonstrates conservative strategies’ opportunity cost during the bull market was enormous.

The bull market is now more than 10 years old, and investors are finally coming out of their defensive shells. Their typical metamorphosis from bears to bulls once again seems ill-timed. Rather than joining the party at this late hour, investors should be sobering up. It’s time to be your portfolio’s designated driver.

Investors are indeed getting more bullish

Reliable sentiment data show that investors are slowly but surely getting more bullish about equities. Some might say that the absurd valuations investors are paying for “unicorn” IPOs reflects excessive bullishness.