Every bull market turns ordinary investors into overnight geniuses. The portfolio goes up, confidence follows, and the line between luck and skill vanishes. It feels like insight, but it’s often just liquidity doing the heavy lifting. Everyone buys what’s working and calls it conviction. You can observe this pattern in every cycle: the dotcom boom, the meme stock frenzy, and today’s AI surge. When money is easy and narratives are loud, process fades. People stop asking why things rise, only how much further they can go. That’s when discipline becomes rare and experience starts to matter again. Because every time the music slows, the same question resurfaces: who was making real decisions, and who was just riding the wave? Markets don’t reward confidence forever; they reward process and structure.
The Psychology Of The Bull
Bull markets create a kind of financial hypnosis. The longer prices rise, the more investors believe they understand why. Risk starts to feel theoretical, something that happens to other people. During the dot-com boom, analysts justified absurd valuations with stories about the “new economy.” In 2021, retail investors on message boards did the same thing with meme stocks and SPACs. Post-COVID, the flood of liquidity made it easy to confuse participation with skill. The lesson is always the same: prolonged gains dull the instinct to question. Investors begin to view volatility as an opportunity rather than a warning when they buy every dip. The process is neglected because it appears to be unnecessary. You don’t need valuation models when every chart goes up. The problem is that fear fades faster than discipline returns. When the cycle shifts, individuals recall risk, but only after experiencing a harsh reminder from the market.
What Structure Really Means
Market structure is the quiet architecture behind every price move. It’s the plumbing of liquidity, flows, rates, and incentives that shapes what investors see on the surface. When people refer to “momentum,” they are actually referring to the structure that pushes money, such as passive funds, buybacks, or interest-rate trends. Structure is why certain stocks lead without any real news and why others stall despite excellent fundamentals. Over time, it explains more returns than stock-picking ever will. Think of ETF rebalancing: when large funds adjust weightings, billions shift automatically, pulling prices in directions that have nothing to do with earnings. Or when companies pause buybacks, the steady bid under their stock quietly disappears, and leadership changes without warning. Professionals study these signals because structure doesn’t lie, it reveals where capital is forced to move. Understanding that gives you an edge the average investor never sees.
The Signs Of A Structural Shift
Structural shifts rarely announce themselves with flashing lights. They start quietly, with the data and behavior that most investors overlook. One of the first warning signs is narrowing breadth when the index keeps making new highs, but fewer stocks are carrying the load. It’s what we’re seeing today, with a handful of AI names masking broader weaknesses across industrials and small caps. Another tell is the slowdown in corporate buybacks or a rise in insider selling. When the people running companies start cashing out instead of buying in, that’s structure, not sentiment. You can also spot it in dispersion. Sectors that have once moved together begin to decouple as capital gets more selective and the cost of money starts to matter again. Rising rates force management teams to rethink leverage, capex, and even acquisitions. You can almost hear the gears grinding. For portfolio managers, the key moment is when correlation breaks. That’s structure speaking. It’s the market saying leadership is rotating, liquidity is shifting, and the easy beta trade is ending. Most will ignore it until the performance gap becomes too large to hide. The smart ones are already watching these cracks form and quietly repositioning before the headlines catch up.
When Genius Stops Working
When structure shifts, the illusion of genius vanishes fast. Strategies built on leverage, momentum, or trend-chasing begin to crumble because their success depended on the very environment that just changed. In 2022, the growth collapse was a perfect example. Investors who believed valuation no longer mattered suddenly learned what duration really meant. The same thing happened in 2007, when the quant funds that looked unstoppable imploded in a week as correlations broke and liquidity disappeared. It wasn’t bad models or bad people; it was bad structure. The cycle always reveals those who were swimming without following a process. As one veteran investor told me, markets don’t humble people; structure does. The investors who survive aren’t the loudest or the most aggressive; they’re the ones who recognize when the ground is shifting and move early. They reduce their exposure before volatility compels them to do so. They adjust position sizes, rebalance, and look for catalysts others miss. In every market turn, discipline beats brilliance. Those who wait for confirmation will find it in their drawdowns.
How To Trade Structural Awareness
Trading structural awareness starts with looking where others aren’t. The Osman framework focuses on catalysts born from change: spinoffs, breakups, activism, and governance shifts. These are moments when structure cracks open and value gets mispriced. When a company separates a division or faces activist pressure, the investor base resets, incentives realign, and capital flows reprice. That’s where structural alpha lives. The goal isn’t to fight the structure but to profit from how it’s being rebuilt. The best trades come when the market is bored or confused, not euphoric. Structural alpha is cyclical; it appears most when narratives fade and liquidity tightens. In those moments, process matters more than conviction. Keep position sizing disciplined and driven by data, not emotion. Every successful investor I’ve studied wins the same way. Aligning with the structure before others recognize its shift is beneficial. When the story dies and the structure changes, that’s your signal to move.
Finally
Everyone’s a genius in a bull market until the structure shifts. The cycle always ends the same way: confidence built on easy money meets the reality of changing mechanics. What separates investors who survive from those who vanish is not prediction; it’s endurance. The real edge lies in a process that holds up when liquidity, rates, and sentiment don’t. Markets will keep rewarding discipline long after the noise fades. The investors who understand structure won’t panic when the next phase begins; they’ll already be positioned for it. The next market phase won’t punish ignorance; it will price it in. And that’s where real investors will quietly get rich again.
On the date of publication, Jim Osman did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com
