By Alan Steel
In the words of legendary investor Peter Lynch, who averaged a 29.2% annual return between 1977 and 1990 while the manager of the Magellan Fund at Fidelity, “You get recessions, you have stock market declines. If you don’t understand that’s going to happen, then you’re not ready, you won’t do well in the markets.”
Hard to argue with that.
Yet, while the average duration of the 11 recessions between 1945 and 2001 was about 10 months, what that really tells us is that the markets are far more often in bullish territory than bear market doldrums.
In fact, the positive versus negative market trajectory (S&P 500 Index) over the last 100 years or so looks like this:
The blue colour above notes the bull markets and the reddish-brown colour shows the bear markets.
But you wouldn’t think that was the case if you were measuring market sentiment or watching the flow of investor money, particularly over the last eight plus years since the 2008/09 recession.
The market statistics show that the impact of that event, and the lingering scars from 2000/02 remain.
Our good friend Mike Williams writes:
“In case you missed it late week, note the fall into the 20’s for the percentage of AAII respondents who are bullish.
“In light of the notes above, and the 10-year fall back toward pre-election lows in the 2.3% range, we can easily see that fear remains quite stationary in the minds of the investor herd.
“The crowd continues to show you their feelings by how they treat their money, and money continues to flood into bonds at even the slightest hint of a pause in stocks.”
Why are investors continuing to seek safety in low or no return bond funds or opt to hunker down in cash ISAs / deposits during the lowest interest rate period in history?
Fear and misunderstanding, methinks. And the daily headlines work like squalls in the sails of those who only seem able to focus on the short-term, moving them any way that bad wind blows.
In the words of Barry Ritholtz: “It is a never-ending battle to keep junk out of the heads of traders and investors.”
Well here’s a good way to start a course correction.
Sit down with someone who has a track record of investment success that spans decades, and who can explain very complicated financial matters in very simple language.
That’s when you’ll know you’re in the right place.
Then take their advice.
Because after all, it’s your money we’re talking about here.