Saturday, 23 June 2012
This is the opportunity facing you today. You could be at the forefront of the largest gains when the tide turns.
Sure, there may be volatility in the market for some months ahead. Years even. But this should NOT stop you from taking control of your financial destiny.
Your money might survive being mothballed in a bank account, gathering a feeble 1% or 2% per year. But unless you can get a pay rise or a windfall sometime soon, nobody is going to help you grow your wealth in the many alternatives available.
At some point, the markets will rise again, and – in our view – those who are already invested in rock-solid shares should make serious gains.
I'm old enough to remember all sorts of stock market crashes and periods of underperformance -- the causes and durations of which are long since lost in the mists of time.
What I do know is that markets eventually recover, and carry on heading upwards – carrying our stocks, and investment wealth, with them.
This is the opportunity facing you today.
You could be at the forefront of the largest gains
The majority of private investors are too scared by what happened in the last few years to invest right now.
But looking backwards and doing nothing is not the way to take control of your financial destiny.
Think of it this way. You'd be crazy to drive your car whilst spending all of your time looking in the rear-view mirror.
And yet many people invest like this. They assume that because 2011 was a tough year for the world's stock markets, 2012 will be just as bad.
But the financial world doesn't work that way, especially the stock market. The past is... well... history.
The tide turns when everyone least expects it. The more obvious the market's direction seems, the greater the odds that you're wrong.
As Floyd Norris of The New York Times has pointed out that, for the past half-century, the market has moved in 15-year cycles where returns swing from spectacular to near-zero.
In 1964, the average real return over the preceding 15 years was a stellar 15.6% a year.
Then it flipped. By 1979, the previous 15 years produced a negative real return.
Then it flipped again.
By the late 1990s, 15-year average returns were near record highs. And again – as of the end of last year, stocks returned a measly 3% a year over the last 15 years.
The trend is clear: After booms come busts, and after busts come booms.
Sound crazy? It sounded crazy in the early 1980s, too.
So did the notion 10 years ago that we were about to face a decade of stagnation.
That's always how these things work. After booms come busts, and after busts come booms. Happens over and over.
Of course, history isn't guaranteed to repeat itself. And what drives stocks to a decade of low or high returns isn't the calendar: it's valuations. Stocks do well after they're cheap, and poorly after they're expensive. So the real question shouldn't be how long stocks have been stagnant, but whether they're cheap.
And right now we believe they are.