"Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria."-John Templeton

In my 34 years as a broker and wealth advisor at Merrill Lynch in the Palm Beach market, and in nearly a decade as a retired market observer, I have yet to find a better encapsulation of how the collective emotional behavior of investors conspires to drive stock market valuations.

Of course, the length of each market stage is unknowable, as is the transitional moment from one to the next, particularly the end of the euphoria-or maximum greed, as I call it-stage. But I've seen investors with a heightened awareness of Templeton's four stages and the willpower and courage to swim against the tide become the biggest market winners.

For me, one stands out. You may have heard of him.

In the mid-1980s, a client stopped by my office at Merrill Lynch in North Palm Beach wanting to buy Christmas gifts for her three grandchildren: one share of stock for each in a company I'd never heard of called Berkshire Hathaway.

Whoopee, break out the Champagne, I thought. (A little snarky, sure, but back then I wasn't in a position to work pro bono.) I punched in the stock symbol and saw Berkshire Hathaway was trading in the neighborhood of $2,000 per share. I did a double take and asked, "Why would you pay that much for one share of any company?" My client explained that she had grown up in Omaha, Neb., so she knew the company pretty well. "The CEO's name is Warren Buffett," she said. "He's become a bit of a local legend."

"Cigar butts" and Cherry Coke. The client-I'll call her Mrs. Omaha-was an unusually thoughtful, measured, and friendly person, so I enjoyed our opportunities to chat, even when she was buying three shares of some overpriced insurance company for her spoiled-rotten grandchildren. She told me that Buffett attended Columbia Business School to study under legendary value investor Benjamin Graham, graduating with a master's in economics in 1951 and eventually acquiring a nearly bankrupt company in New England's failing textile industry.

By the time I was sitting with Mrs. Omaha, Buffett had effectively remade Berkshire into a value-oriented holding company with a primary focus on insurance. With the steady cash flowing in from premiums, Buffett bought Midwestern consumer-related businesses he understood ("cigar butts," Professor Graham called them); took positions in public companies he perceived as long-term compounders, such as Coca-Cola and American Express; and later bought entire companies outright including Geico, Duracell and BNSF Railway. Buffett took no salary, instead paying himself with shares of Berkshire's stock.

In the five or so years since the company's 1980 IPO, the stock had risen nearly tenfold from its opening price. Yet this extraordinarily ordinary man lived in the home he grew up in, drove inexpensive American cars, ate at McDonald's, and drank Coke and Cherry Coke like it was water. Great diet, I thought. This guy won't be around long. "Don't you think it might be a little late to buy in now," I asked Mrs. Omaha. She chuckled and said, "No, Jim, I think the man's a genius, and he's only just beginning."

So I bought three shares of stock in certificate form for Santa to put into the grandchildren' Christmas stockings. My commission was a few hundred dollars, and that was that. Mrs. Omaha was off to the tennis courts, and I was back to the damn telephone. (If the grandchildren held on to those three shares of stock, they would be worth a total of about $2.3 million today.)

Market winter approaching? Four decades later, we're in another bull market. Our yo-yo markets have been recording all-time highs of late based on remarkably strong corporate earnings reports, while fluctuating broadly on the daily news flowing (or not flowing) from the Strait of Hormuz.

Going by Templeton's market-cycle aphorism, it appears we are somewhere between maturing on optimism and dying on euphoria. Think of it as a splendid late fall day when the air is crisp and the colors of the forest's leaves are most glorious, a clear foreshadowing of the coming winter. Reflecting back to the dot-com boom and bust that marked the turn of the century, while acknowledging the vast upgrade in the quality of today's leading tech companies, market seers are asking whether we will have an extended fall season or whether the leaves are about to tumble to the ground.

We will all know the answer a couple of years from now. Meanwhile, a majority of investors should consider paring back the equity portfolio here and there while looking to more reasonably valued growth stocks. With the "Buffett Indicator" (U.S. Wilshire 5000 index divided by gross domestic product) standing at a record high valuation, it feels like the right season to be storing away a few acorns and chestnuts, i.e., cash and short-term instruments, to stay safe and well-nourished for the inevitable turn of the season.

As for Warren Buffett, who will turn 96 this weekend, he retains his superior cognitive abilities and is among the richest human beings on the planet. We can only surmise that eating at McDonald's every day and drinking copious amounts of Cherry Coke is the way to go.

James Patrick Rooney is a 34-year wealth management veteran and retired Merrill first vice president and senior wealth management advisor. His memoir, "For the Love of Money: Four Dizzying Decades Riding the Merrill Lynch Bull" will be published in September.

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