In today's regular Friday morning investment meeting, my mutual fund management partners and I discussed how to educate long-term investors and manage expectations (www.EASfunds.com). How many of you, before the tech wreck, were investing before 1980? My guess is not many, either because of your youthful age or the fact that stock ownership back then was nothing like it is today.
What that means is that most of us believe that the stock market is the best place to invest if you have a long-term horizon. Well, there is long and there is long.
Last week, I posted two charts showing multi-decade trends in the market (The Decade Ahead). Looking at a century of data is nothing new for analysts but my fellow fund manager Rob Isbitts (Worth Magazine top 100 investment advisers several years running, by the way) had us look at it in chunks using Stockcharts.com.
When we do it that way in two decade chunks, the message becomes crystal clear. The 1980s-1990s were an anomaly and since most of us cut our teeth in this business at that time it is no surprise we think that 5-10 year time horizons returning 10% (not even the 20% of the bubble) is a gimme. We expect to make that return if we are patient.
Of course, think again. It depends on when you do it. Right now, expect very little unless you are willing to trade the market with a time horizon of months, not years.
Here is the link to one of the charts, starting in the 1980-2000 time frame.
The chart itself is too big to display nicely in this blog. Go visit it and then click on the "previous" link at the bottom, going back in time to the start of the last century. When viewed in these chunks the message is clear. The stock market moves in secular rallies and non-rallies. This decade, and possibly the next, is a non-rally period from the long-term perspective.
Managing your portfolio - not day trading it - is paramount now and should remain that way for many years to come. We just had a cyclical bear market. I cannot wait for the next cyclical bull market to begin a la 1975.
Let's not argue in the blog post over when that rally will actually begin.