Over the weekend, I read a great article in Barron’s by Michael Santoni. Here are a few highlights:
The stock market is struggling to stay above a level it first reached almost 13 years ago! Jim Paulsen of Wells Capital gave the return for 10 years after any period that had 12 years of being flat or down, as we have now; a 7.2% annual gain, vs. 4.7% for all other times, excluding dividends. Neither one is too exciting, but we can clearly see that the periods following extended down markets performed better.
In 1998, stocks were about twice as expensive as they are now.
Stocks don’t typically have huge losses after getting back to an area reached 12 years prior, according to Santoni.
Other time periods with 13 year extended bear markets were the early 1940’s and late 1970’s. Like today, there were a lot of huge negative factors affecting the market, including wars and rampant inflation. During those times, the earlier market lows were never reached again.
Am I saying the market is going up from here in the near term? I just don’t make predictions, but I do like to look at history with similar patterns.
So, what’s a girl to do? Do you need to study financial market cycles extensively? No, but please:
Be aware of long term trends so you can avoid buying at the top and selling at the bottom.
Notice what offers value at any given time before investing in it.
Also, be open to alternative investments, such as real estate, commodities, funds that capture market trends, your own business, and even yourself. (When you have higher marketable skills, you can make more money; this means better cash flow, which equates to having more money to grow, but this is another article topic.)
Start with where you are now: know what you have, understand the basics of how and where it is invested, notice long term trends, increase your knowledge and involvement with growing your money.