Share prices in Britain’s biggest companies surged last December, but will we enjoy a “Santa rally” again this year — or a Christmas crash? It is worth asking because the FTSE 100 has risen in 27 out of 33 Decembers, by an average of 2.5%, since this index was set up in 1984. ……

…… However, forecasting that share prices will fall at some point in the future is so easy as to be worthless; the difficult and valuable bit is saying when. No wonder it is sometimes said in the City that those who call the top of the market too soon are condemned to keep calling the top until they are right. Or, as the independent financial adviser Alan Steel puts it, an investment bubble can be defined as rapidly rising prices in any asset in which you have failed to invest. ……

• 36% The rise in American share prices since Donald Trump won the election
• 69 The number of days it takes to recover losses after a stock market correction

What a contrast with the dismal experience of depositors in banks, who earn a pittance for their patience. Even at these elevated levels, the FTSE 100 continues to yield an inflation-busting 4% net of basic-rate tax, with dividends covered 1.2 times by corporate earnings.

As pointed out here before, there isn’t much margin for error and prices do fall sharply on any disappointment. Yet even the probability of an imminent setback does not necessarily mean it makes sense for people with long-term investment objectives to sell up now. ……

…… Fear and greed are the emotions that alternately drive markets down and up, as much as any economic facts, because the participants are humans and subject to herd mentality. Many fund managers would rather be wrong in company and keep their jobs than be right on their own and risk ridicule or redundancy.

Less obviously, “loss aversion” means most of us hate losing money more than we love making gains of the same value. Richard Thaler won this year’s prize in economic sciences in memory of Alfred Nobel after analysing how investors may believe they are acting rationally but often behave irrationally.

As if to demonstrate the difficulty of overriding our emotions, Steel reminds me that Cass Sunstein, who co-authored Nudge, the bestselling book in which Thaler set out his ideas, admitted he could not resist selling his equity funds when the stock market suffered temporary setbacks in 2011. As a consequence, Sunstein — who says he consulted and ignored Thaler before making this mistake — missed the subsequent recovery in share prices. ……

…… So, lacking a crystal ball to predict the future, I will rely on past and present experience of real returns from equities to remain a long-term investor in shares and share-based funds. We might even get a short-term boost from Santa.