Tuesday, August 18, 2009

Get Ready For an Avalanche of Blog Entries

The stock market has somewhat resembled a seesaw this past week, which has lead me to “burn the midnight oil” regarding the rigorous review of all portfolio holdings at WFG. I have also conducted an in depth analysis of what the real facts are regarding the strengths and weaknesses of the U.S. and world stock markets.

Studies of stock market history reveal that based upon the 40-50% stock market bounce, that there is a 71% probability that a 10% “correction” will take place(1)
The correction in July of 5-6% did not meet the 10% threshold.

As we have learned (which too many have forgotten) from past cycles, the longer and higher the stock market climbs without the “needed” correction(s), the more brutal and large the correction when it comes. Historically, there is a bear market (at least a -20% decline) every THREE years. When is the last time that happened?????

The 1980’s were essentially straight up like a rocket! Reagan and Clinton were very good for the stock market.

Then came the 2000-2002 tech bubble implosion of -48% on the S&P 500. This made up for the lack of normal market behavior.

Then came the five up years of 2003-2007. Beginning in late 2007, we began the worst (and fastest) stock market decline since the Great Depression!

Investing lessons:

  1. Markets DO NOT go straight up, especially after increasing 40-70%.
  2. The longer and higher the gain, the deeper and longer the potential pain (owe!)
  3. Greedy investors make money and then often lose it and possibly more.
  4. “Risk Measured” investors have more money ten years later than they started with.

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(1) Srategas Investment Strategy Report, 5/18/09