Two Voices, One Market Lesson
Here’s the lesson: Every new market high proves beyond a doubt that the fears voiced before it got there, along with every single dip, correction, mini-bear market, flash-crash, soft spot, bad data report or earnings cycle miss throughout, was an opportunity for the long-term investor to stand tall and benefit.
Another Perspective
But, like our parents told us, "There are always two sides to every story...."
A review of history in markets, investing and economic outcomes vs. predictions for same would surely support that conclusion, right?
Well, as we move through the most unheralded and negatively reported Inauguration Day in recent history, we might find this was another one of those times when we all had two voices we could listen too.
And of course it was always our choice of which one to listen to.
In fact, I remember back in the early 1980s that there were two very distinct voices.
One was the voice that said, "Look how bad it is out there. Debt ceilings, towering interest rates, runaway inflation, OPEC, the lost decade, lazy ‘boomers’, hippies, marches on campus and paltry economic data."
It was poor indeed. Then there was the voice that said, "Hey, the boomers are coming. That's a big egg that has to go through the snake. The Boomers are going to need to find a job. And what's this tech stuff we are hearing about? Software? Personal computers? Really? Hey, things are looking up and the Dow Jones is approaching its previous record high."
Now, in hindsight which voice was the more productive one to listen to?
Then in the early 1990s there were also two voices in our ears.
One was the voice that said, "(US) Banks are going bust every week, S&Ls are too. Real estate is empty everywhere. There is debt for as far as the eye can see. Politics stink, the economy is toast, Congress has to save us. We will never use up all that real estate we have now. What will cause any new growth going forward?"
Dark for sure, eh?
Then there was the other voice that said, "You cannot believe how cheaply the government is selling this real estate out of the RTC."
Now, which voice was the more productive?
Then there was the dawn of this century, 16 long years ago. And a little over two years in as the tech bubble was crushed, it certainly appeared dark.
Meanwhile the, "It'll never work" drone was at work again everywhere.
The Internet? "Forget about it," they said.
I remember being asked, "Mike, when will tech stocks be good again?" I had answered that one so often each week that I simply began to cut and paste the same sentence: "When it’s time, you won't want anything to do with tech stocks ever again." Tech was dead, worthless, way overbuilt and sure to be meandering for years into the future.
But it wasn’t, and it didn’t.
I could go on, but....
The Point?
There are always two voices fighting for our attention. There is the voice of fear that sells a whole lot of materials, newsletters, financial products, ad space, click costs and hype.
But it’s rarely if ever a part of a healthy rate of return over time, at least not anywhere I can see.
And so it is again. Fear is right here. It's in all the reports about what is to come, which always appears to be, "Beginning tomorrow."
The press has already lived out an entire administration - the good and the bad - before it began.
They’ve conjured up points and counter points, taken stabs at what they believe the administration believes (often with no facts), and they have lived out scenarios that are often so misleading that we surely cannot fault the public for being on edge already.
The lesson is that you shouldn’t listen to the wrong voice. And more often than not the right voice is the tough one to believe.
Unfortunately, after so many years of deeply effective fears; being afraid is almost like a security blanket now. In fact, fear is no longer about being afraid, it’s now considered to be prudent, objective, or worse, realistic.
So why don’t we take a shot at a bit of realism:
- The next 35 years is probably going to look a lot like the last 35 years. We can be assured we will see some of the ugliest bear markets ever, and more than a few flash crashes.
- We can be certain that terrorism will live within our boundaries for many years to come.
- Inexplicably, Mother Nature will unleash her fury in more ways than one, and these events will end very badly for some.
- Recessions? You bet, and likely more than a few of them.
All of this bad stuff that we’ve endured on and off for decades will be with us again.
They’ll just involve even larger numbers, which makes them scarier. But just like those times before we will overcome, fight back, get over and move beyond them all.
Back to the Future
Think about it like this: Had I said all this to someone back in 1982 when I started in this business, "Even through all those terrible things are likely coming our way, the markets will rise from 970 to over 19,000 during the next 35 years," you probably would/could have thought I was nuts.
But it’s now real.
And in the midst of all the terrifying things to come, where then does that same general math take us over the next 35 years?
How about, “A long way up.”
The Bottom Line
Pray for a correction.
The long-term drivers weaved into our Barbell economy are far more significant than many currently understand.
And that’s a good thing.
The leading edge is always a scary place to be but our (US) economy is building energy in the pipeline.