Stockmarket Sherpas – “Just a little patience…”

“Life is 10 percent what you make it, and 90 percent how you take it.” ― Irving Berlin

By Alan Steel

Thanks to Chart of the Day for the image below; a longer-term perspective on S&P 500 earnings:


Note: For those of you who are new to this, the S&P 500 is a popular representation of how the US market is performing, and offers a larger sample of companies than does the Dow Jones, where only 30 companies are being measured.

Now, what some folks will see above is an ascending line that dates back to about the 1920s. That means that earnings have been rising for a long long time, with sporadic dips along the way that tend to shake-off the scaredy cats and let long-term investors buy things cheaper when the price drops.

That, however, is only one perspective. And unfortunately it is not the majority investor view of the above chart (but it should probably be yours).

The truth is that most folks will focus on the circa 90% decline from the 2007 peak to Q1 of 2009, along with the recession and Great Depression lows.

And they’ll make every effort to be defensive and try to spot the next peak or “market top” in order to avoid the pain of the past.

In fact, just now the market sentiment indexes tell us that defensive investing – looking for safety in bonds and deposit accounts – is all the rage.

Equally sadly is that these folks rarely seem to learn from past mistakes, and likely comprised those who ran for the hills during the more recent global economic skid, selling all the way down. Could have been the same mob from 2000 to 2002.

Now, I’m not saying that staying the course is easy. That’s why so few folks are good at doing so, and equally, why so few people – relative to the investor population – are wealthy.

It’s far easier to listen to the news, to run for the hills when things appear fragmented and then tell others all about how they got burned by the markets.

But markets don’t burn investors, behaviour does.

It’s all a question of perspective.

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Alan Steel is Chairman of Alan Steel Asset Management

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