If there is one lesson investors learn, it should be to avoid being bearish for too long. Otherwise, you miss out on some incredible investment runs on Wall Street.
“Bears make headlines, bulls make money.”
— Old Wall Street Saying
During my 40 years in the investment business, I’ve seen pretty much everything: bull and bear markets, boom and bust, inflation and deflation, crises and crashes. The one lesson I’ve learned is to avoid being bearish for too long. Otherwise, you miss out on some incredible investment runs on Wall Street.
Last week, I met a longtime friend in church. He’s semi-retired now and is dependent on his retirement income. He asked me for some stock recommendations back in 2008, right before the crash. I gave him a list, but then told him to hold off buying until the financial crisis passed. But he never invested in the stock market. He’s still out of the market and has to depend on low-yielding CDs, his company pension, and part-time work to finance his sunset years in Florida.
If he had gotten back into the market in 2009, he would have more than tripled his investments.
The fact is that despite occasional crashes and bear markets, two-thirds of the trading days since World War II have been up. It pays to be an optimist.
Since the mid-1970s, I’ve debated practically every doomsdayer on the planet, including Howard Ruff, Harry Browne, Doug Casey, Martin Weiss, Marc Faber, and Peter Schiff. I call them “permabears.”
The permabears are out
Last week, I debated super bear Harry Dent on the outlook for the economy and the stock market. He’s predicting a crash and depression starting this fall due to poor demographics.
But he’s had to push back his doomsday prediction several times, and his record since 2000 has been decidedly mixed. Eventually, Dent may be proven right, but, for now, the bull market is charging forward.
Lately, Yale economist and Nobel Prize winner Robert Shiller has been warning that US stocks are vastly overvalued. His CAPE Index measures the S&P 500’s average inflation-adjusted earnings over the previous 10 years. He notes that the ratio stands at 25, a level that has been surpassed only 3 times since 1881 in 1929, 1999, and 2008.
Never mind that Shiller is a permabear on stocks and has argued that stocks have been overvalued since the early 1990s. He’s been warning that stocks are too expensive for 20 years while the stock market has more than doubled. Talk about missed opportunities!
Shiller fails to realize that stock prices are always looking forward, and with the global economy on the mend and interest rates staying so low, Wall Street is moving forward. Granted, the stock market has not seen a serious correction in 3 years and is due for a sell-off. But I doubt it will be the beginning of a bear market.
I always lose the debate with the permabears, because they use some distorted statistic and scare the dickens out of the audience. But in the end I win, because the market inevitably moves higher.
My view is simple: As long as our economy benefits from largely free market capitalism, the stock market is going to trend higher over time.
In May 1962, Wall Street suffered from a bear market and many investors were scared. But J. Paul Getty was buying. In his classic book How to Be Rich, he wrote:
“The seasoned investor buys his stocks when they are priced low, holds them for the long-pull rise and takes in-between dips and slumps in his stride.”
Needless to say, he was right. Who remembers the 1962 slump?
Mark Skousen, PhD, is a contributing editor for Investment U. Read more by Mark here.
The information contained in this article should not be construed as investment advice or as a solicitation to buy or sell any stock. Nothing published by Physician’s Money Digest should be considered personalized investment advice. Physician’s Money Digest, its writers and editors, and Intellisphere LLC and its employees are not responsible for errors and/or omissions.