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The Age-Old, Old-Age Problem in Bull MarketsBy
Monday, February 13, 2017
If you are going to succeed in investing in 2017, you need to get over one simple thought.
This should be simple. But it will be far more difficult than you can imagine.
You see, NOBODY will believe you. EVERYONE else will believe down to their toes that it's wrong. So you will have to stand alone among your friends and colleagues.
This thought will be like religion or politics – you're not going to change people's minds. So I suggest that you don't even bother.
Here's the big thing you need to know:
Stock bull markets do not die of old age.
Please, read that sentence again. Say it out loud. Repeat it. Do whatever it takes to sear it into your brain.
It sounds so simple... But it will be harder to stick with this idea than you think. Everyone around you will tell you differently. But they don't know the truth...
Why do people think bull markets die of old age? Because dying of old age seems natural. People assume that stocks are like the seasons – that we have winter (the bad times) and summer (the good times).
There is some truth to that thought – stocks DO move from good times to bad times. But stock market booms and busts are not based on the calendar... There isn't a reliable schedule for up moves and down moves.
Booms and busts are NOT based on known dates or the speed the earth travels around the sun.
You might think I'm making too big a deal about this simple point. But it is important. Here's why...
The stock market bottomed out in March 2009. This bull market is about to be eight years old. So you are going to hear about this – all year.
Eight years! Wow! Is that old?
If you have learned my lesson today, the correct answer is, "It doesn't matter. Bull markets don't die of old age."
I learned this lesson in the 1990s. And I am so glad I did. It has served me well over the last couple of decades.
Here's how I learned it...
The last long bull market lasted for almost the entire decade of the 1990s.
I looked up to the stock market analysts who were doing their homework back then, crunching the numbers to see what worked in investing. Two of the biggest names were Martin Zweig and Vic Sperandeo. (They both wrote best-selling books on analyzing the markets, and I recommend reading them.)
They got A LOT RIGHT back then. They helped steer my education toward what really works in investing – the numbers, not people's opinions.
But they didn't get everything right...
Both of them believed bull markets die of old age. Both of them calculated the average length of a bull or bear market... And they used that in their trading, betting on the demise of the 1990s bull market.
I don't know their results, or how much they used this strategy in their investing. But if they relied on this idea heavily in the last years of the boom, they would have missed out on the bull market's biggest gains...
The overall stock market went up for the entire decade of the 1990s. Take a look...
More importantly, the 1990s bull market seemed to gather momentum... resulting in a spectacular "fireworks display" in the final years. (Yes, YEARS.) The Nasdaq went up 40% and 86%, respectively, in the last two years of the bull market. If you got out of the market in 1997 – or even earlier – because you thought the boom was simply getting too old... you would have missed out on the fireworks.
Now, it IS typical for bull markets to end in a fit of unbridled optimism, like we saw in the late 1990s (though that was an extreme case).
Unbridled optimism is a much better indicator of a market peak than old age.
So let me ask you this... Have we experienced years of unbridled optimism about stocks like we saw in the late 1990s?
No way. Not a chance.
Could the unbridled optimism in stocks be starting right now? It could be.
Does that mean today is the end? No.
My friend, you will hear – over and over again this year – how old this bull market is, and how it's about to die of old age.
But stock market booms don't die of old age.
The faster you commit to this idea, the better chance you have of making big money investing in 2017 (and possibly 2018) as this market heads toward its peak.
And you will likely become far wealthier through investing in 2017 (and possibly 2018) than anyone you know.
People will ask you how you did it. They'll say, "How did you know??" Even then, you still can't tell 'em – they won't believe you.
Let's repeat this together, one last time...
Bull markets don't die of old age.
When you hesitate in 2017 (and you will!), repeat that to yourself. Again. And again.
Got it? Good!!!
Good investing,
Steve
Further Reading:
"The Dow Jones Industrial Average hit 20,000 last week... And that makes you nervous," Steve wrote recently. "I made the exact mistake that you want to make today..." Learn how to avoid this trap and capture the biggest gains of the bull market. Click here.
Do new highs mean it's time to sell? "This is not 1999," Steve writes. "People are fearful today, not wildly optimistic." But more important, history shows that new highs are actually some of the best times to own stocks... Get the full story here.
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Priceline (PCLN)... online travel
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PNC Financial (PNC)... financial services
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Roper Technologies (ROP)... manufacturing
Honeywell (HON)... manufacturing
Honda Motor (HMC)... automaker
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RE/MAX (RMAX)... real estate
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NEW LOWS OF NOTE LAST WEEK
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