Friday, August 20, 2010

Dangerous Stock Pushers

I love how the industry still thinks stocks are the be all and end all for investors. Is there really nothing else? No, not bonds or gold. How about movies, restaurants, inventions, art, baseball teams and a zillion other things that do not happen on Wall Street?

Here is a statement from someone revered in the investment world. You would think that after two bear markets in one decade he might take his wad of cash and move to Florida.

Stocks are going to outperform bonds long-term. That's almost assured. Yes, we've had a decade where the stock market underperformed, actually had negative returns, but that was very unusual. You have to go back to the 1930s before you had another negative return for a decade in the stock market.
End Quote

Let's start with the math. Using his numbers, the 1930s had a negative return and the next one was the 2000s. How many 10-year units are between the two? Six. Granted with no statistics to back it up, that makes one in seven decades a loser. It also means that people with current life spans will see one, if not two of these "lost decades" in their time on Earth.

How long is "long-term," exactly?  You could be lucky and see a lost decade before you start investing (like when you are 10 years old)  and theoretically never see one again. No problem for you!

But what happens when a "lost decade" occurs smack in the meat of your investing life? Will you recoup your losses in 10 years? 20 years? How long is long?

Stock pushers are dangerous. Stock worshipers are deadly. They will take your fees and keep you riding the roller coaster that is the stock market and if you are unlucky enough to find a "lost decade" the answer is always "stay the course" and "we are long-term investors."

Sure, these guys can help you make money when stocks are in vogue.  But as they say, do not confuse brains with a bull market.


William said...

There's a reason they call it the "sell side."

patrick neid said...

Trade your age in Bonds as they say. The leftover is for the other stuff.

MrWave4 said...

I am not Responding to the "Dangerous Stock Pushers" post but saying to the short term Bears be careful as the professionals are now "Net Long". The source I use to come to this conclusion is the most recent COT report.
I am looking at the Chicago Merc Exchange Emini S&P Futures open interest for 17 Aug. More oftan than not the professional traders get it right especially at major support.

Quick Takes Pro said...

I like COT but it is sometimes misleading for stocks. Are you talking commercials or large specs?

MrWave4 said...


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