26 SEPTEMBER 1998, Page 28

Paradigms regained

THE WEST'S markets have risen so far and for so long that they are full of profes- sionals who believe that markets always do this. (Amateurs, too, of course.) Willing to be of help, I offer them some precepts from my Bad Investment Guide. Markets, so they need to know, do not move in straight lines. They overdo things in both directions. As a rule they fall more sharply than they rise, for bubbles expand slowly and burst quickly. There is no more seductive promise in mar- kets than the magic words, 'This time it's different.' (The American version of this is or was, 'It's a new paradigm', meaning that economic laws have been suspended for the markets' benefit.) A cruder assurance can suggest that there is a wall of new money approaching the markets with nowhere else to go. People will always find homes for their money and, for that matter, ways of losing it, but when there is plenty of it about, they become less choosy. The Sergeant rule of thumb is that markets retrace their footsteps by going one-third of the way in the opposite direction.