Cocktail parties and Bottomless pits

From One Up on Wall Street, here's Peter Lynch's Cocktail Party theory:

If professional economists can't predict economies and professional forecasters can't predict markets, then what chance does the amateur investor have?  You know the answer already, which brings me to my own "cocktail party" theory of market forecasting, developed over years of standing in the middle of living rooms, near punch bowls, listening to what the nearest 10 people said about stocks.

In the first stage of an upward market - one that has been down a while and that nobody expects to rise again - people aren't talking about stocks.  In fact, if they lumber up to ask me what I do for a living and I answer, "I manage an equity mutual fund," they nod politely and wander away.  If they don't wander away, then they quickly change the subject to the Celtics game, the upcoming elections, or the weather.  Soon they are talking to a nearby dentist about plaque.

When ten people would rather talk to a dentist about plaque than to the manager of an equity fund about stocks, it's likely the market is about to turn up.

In stage two, after I've confessed what I do for a living, the new acquaintances linger a bit longer - perhaps long enough to tell me how risky the stock market is - before they move over to talk to the dentist.  The cocktail party is still more interested in plaque than about stocks.  The market's up 15% from stage one, but few are paying attention.

In stage three, with the market up 30% from stage one, a crowd of interested parties ignores the dentist an circles around me to ask what stocks they should buy.  Even the dentist is asking me what stocks he should buy.  Everybody at the part has put money into one issue or another, and they're all discussing what's happened.

In stage four, once again they're crowded around me - but this time it's to tell me what stocks I should buy.  Even the dentist has three or four tips, and in the next few days I look up his recommendations in the newspaper and they've all gone up.  When the neighbors tell me what to buy and then I wish I had taken their advice, it's a sure sign that the market has reached a top and is due for a tumble.

There's another quote (that I couldn't find), that talks more to the bear side of the market, where after continually investing and losing money in the stock market, the investor concludes: "Wow, this thing [the market] really is a bottomless pit."

The term "crash" is bandied around alot these days.  It seems that we have one every few weeks to months.  But I'm yet to hear the stock market described as a "bottomless pit".  And the dentist isn't more popular than the fund manager - yet.