dhdgdggdggd
sdhdhhdhhd
The four most dangerous words in investing are: “This time it’s different” -Sir John Templeton
“There is nothing new except what is forgotten.” -Rose Bertin
fjhfhfhhf
fhfhhfhf
We’ve been in a bull market since June 2023, when the S&P 500 index rose 20% above its recent bear market low. Historically, this bull market still has life because, after two years, it’s still shy of the 6.6-year bull market average. The current gain for the current bull market is about 60%, which is below the 180% average bull market return.
ffbfhbfhh
Is This Time Going to be Different?
With potentially 66% of the average bull market gain still ahead, inflation under control, interest rates falling, and a new administration beginning in January 2025, could this time be different?
With all the positive aspects listed above, could this be the beginning of a long-term massive bull run unlike any other in history? Could this time be different?
fhfhfhhf
This chart by First Trust depicts historical US bull and bear markets since 1926. The average length of a bull market is around 6.6 years. The longest-recorded bull market since 1926 lasted over 15 years and returned a little over a 935% gain. Since 1926, bull market lengths have varied from 2.5 years to 15.1 years. Historically, the current bull market should continue for at least another four years and return an additional 120% gain.
In my 72-year lifetime, I have lived through seven different bull market cycles. I spoke extensively about the psychology of gain and loss in conjunction with risk tolerance in the blog titled EXPLORING THE OPTION: LIQUIDATING MY STOCK HOLDINGS AND MOVING TO CASH. The synopsis of this blog is that most investors exaggerate their risk tolerance, and most investors don’t understand that the pain of losses is more intense than the joy of gains.
dhdhhdhhd
What Does This Have to do With the Current Bull Market?
Psychology has a great deal to do with investing. People, in general, have a herd mentality and follow what the majority is doing. We feel there is safety in Numbers. When everyone invests in a rising market, it must be the correct strategy. Right?
I would agree that investing in a rising market is a good philosophy. I don’t believe that following the herd is a sound investing strategy. The herd invests when the market is near its peak and sells near the bottom of a bear market. Statistically, the average investor returns 2 to 3% less than the buy-and-hold investor. The gold standard for investing is buy low and sell high, not buy high and sell low!
No one should ever invest under the assumption that “this time will be different” and that the stock market will continue to rise for an undetermined period, providing the highest return recorded in history.
dhdhhdhhd
According to Richard Philbin:
One of the most used clichés involved in the investment markets is “it’s different this time” and those four words are often used as a sign that investors need to use to exit an investment strategy. “Different” shouldn’t mean “good” or “bad” though. Different just means different.
However, at ALL times, it is actually different this time. Regardless of whether you are looking at the price of a stock, the level of an index, the underlying inflation, interest rates, gross domestic product of a country, the state of a currency or so on then it is actually different this time, and the key word of the final sentence is “time.”
One of the great things about capital markets is they are dynamic and never move in the direction you expect them too or with the same quantum. This weeks piece will not delve into facts and figures as it will take too much time to research, but by simply understanding how an index is calculated (take the FTSE All Share for example) it seems almost impossible that the market could finish two days at exactly the same level with the underlying components having the same share prices as well.
hdhdhhhdhd
The Rally Cry
“This time is different” is the rallying cry used by media and insiders to entice the uninformed to pour money into a market that may or may not continue to rise. With all the positive news and positive economic data described above, what could derail the current bull market?
- A change in political leadership– the change in leadership occurring in January 2025 could have positive or negative effects on the stock market. Historically, change in political leadership has not had a massive influence on stock market returns.
- A change in inflation– much more important than political leadership are current economic conditions. Periods of high inflation usually lead to stock market sell-offs and poor market returns.
- A change in interest rates– high interest rates usually raise the cost of doing business with a subsequent decrease in profits. High interest rates decrease stock market returns while falling interest rates positively affect future stock market returns.
- “Black Swan” events– A black swan event is an unexpected event with a significant impact that’s difficult to predict and can be explained only in hindsight. A Black Swan describes financial crashes, natural disasters, or terrorism. The worldwide Coronavirus pandemic of 2020 fits the description of a Black Swan event. (Many conspiracy theorists would question whether the Pandemic fits this category as they feel the Pandemic was engineered and doesn’t represent an unexpected natural event.) Black Swan events can have severe adverse effects on the stock market since they are unexpected and unanticipated. What are some potential black Swan events for 2025: *The Trump presidency– many people feel that Trump’s second term in office will be volatile and produce unexpected shocks. *A worldwide cyber attack– generative AI (artificial intelligence) is rising in popularity and declining in price. AI could potentially become the perfect tool for cyber attackers. AI can write code that is not fully understood and can produce computer security risks. *Nuclear risks– even smaller countries have nuclear capability and the radical mindset to use these nuclear weapons if pushed to the limit. The fact that these smaller countries have nuclear capabilities creates conditions for warlike conflicts between countries. *Another Pandemic– after the pandemic of 2020, it’s easy to realize how economies would be negatively impacted. Supply chains are affected, and goods and services become scarce. *Trade wars– many countries now engage in economic trade wars by putting tariffs on imports from other countries. An escalation of these trade wars could have severe and long-lasting economic impacts. *Global warming– whether or not you are an advocate of global warming, hotter temperatures could have a detrimental impact on the world, economy, and world resources. *Unexpected geopolitical alliances and realignments– although geopolitical differences have the potential to disrupt world economies, the realignment of these differences and the alliance of political enemies could also have a positive effect on the world economy in the coming years. The combination of several countries, either peacefully or by forceful takeovers could create a new powerful country that would change world politics. *Computer technology– artificial intelligence (AI) is already changing the world in many ways. Yet undiscovered technologies could change the world in unknowable ways.
- White Swan events– A white swan event is an anticipated and predictable event that can have a significant impact on the economy. The size and scope of white swan events can also be predicted because of available information. *Slowing global growth– even though the world economy is expected to grow 3.1% this year, it is still slower than in the two decades before the pandemic, when it averaged 3.8%. The global economy seems to be moving towards a soft landing, but unforeseen events could cause anticipated turbulence. *Stock market bubbles– overheating in the technology sector, and domination of US equity markets by the 10 largest stocks are inviting comparisons to the dot-com bubble. These similar circumstances are raising the risk of a stock market selloff. *US job openings– job openings in December of 2024 rose to a three-month high. *Americans are losing jobs– many Americans are getting fired, especially workers in the tech sector. But, layoffs are not isolated to the tech sector alone. In the past few weeks Alphabet, Amazon, Citigroup, eBay, Macy’s, Microsoft, Shell, Sports Illustrated, and Wayfair have all announced job eliminations.
xhbbxhxnb
Historic and current economic conditions indicate that “this time will be no different from any other time,” and that the current bull market will be followed by a bear market, which will eventually be followed by another bull market.
hdhdbbgd
All this information brings to mind the lyrics of the classic American rock song American Pie:
I met a girl who sang the blues. And I asked her for some happy news. But she just smiled and turned away.
I went down to the sacred store. Where I’d heard the music years before. But the man there said the music wouldn’t play.
And in the streets, the children screamed. The lovers cried and the poets dreamed. But not a word was spoken. The church bells all were broken.
And the three men I admire most. The Father, Son and the Holy Ghost. They caught the last train for the coast. The day the music died.
hdghgghdbhgd
At some point, the current Bull market will die, and good news will be hard to find. People will only give you bad news, and it will seem like conditions will never improve. Your stomach may start churning and seem like the end of the world! Even though you thought this time would be different, it’s the same!
vdgggdggd
dghdggfdggd
Final Thoughts
- Knowledge is power. First and foremost, it is imperative to understand that market cycles are a normal and an integral part of investing. Every long-term investor needs to prepare mentally and financially for the bull market highs and the bear market lows that inevitably occur during an investing lifetime. During my investing lifetime, I witnessed seven bull and bear market cycles.
- Economic conditions can change very quickly. What appeared to be a very positive economic outlook a few days ago can change very rapidly due to a Black Swan or some unforeseen occurrence.
- Following the herd is never the best strategy. The herd is very rarely correct.
- A comprehensive and well-thought-out plan will help to navigate an ever-changing landscape.
- The stock market is forward-looking, and stock prices represent the prospects of individual companies. Black Swan events, White Swan events, and current economic situations can all affect stock market returns.
- Never rely on average returns to set individual retirement plans or projected returns.
- In one interview, Sir John Templeton, arguably the best international investor in history, once publicly stated that he had no idea when the next bear market would occur. He stated only that bull markets follow bear markets, which follow bull markets.
- Anyone who tells you they can predict the end of a bull or bear market lies to two persons, you and themselves.
cbhdhhdhhd
hfdhhhdhd
If you’d like to be a part of a free online retirement community, join us on Facebook:
COMMENTS