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Wall Street Steward Blog

Born To Run!

I do not remember the last day where I didn’t hear at least one person call for a major stock market correction.  Sometimes, it comes from normal, every day folks….and other times, it comes from so called “experts.”

I will be the first to confess that I do not know what the stock market will do over a short term time horizon.  Nobody can predict those types of movements with any accuracy or consistency.

However, over a longer term time horizon, the stock market could continue to move higher. Here is why….


Over the past 5.5 years, the market (as measured by the S&P 500) is up roughly 200%. In fact, here is a graph of the performance since 1997.

Do you detect a pattern here?  +100%, -50%, +100%, -50%, +200%, soooo…..we have seen this movie twice before, right?  Aren’t we due for a -50%?

Well, that is certainly why the doomsdayers are so vocal at the moment.

However, two quick points here:

  1. If we assume that this pattern will repeat itself from now until eternity, we would already be in 100% cash. We would have sold at the end of 2011 after the +100% run.  Ok, so if you did that, you only missed the next 100%…but who is counting?
  2. If you take a look at a longer term graph (see below), you will find that we typically have periods of time where the market goes sideways, followed by MAJOR moves higher.  Looks like this:

See the pattern?  Good.  Now, see the little 2000 – present tail at the top?  That is essentially the top graph.

As you can see, it is possible that we continue this run up in the stock market for a long time.  Are you mad at me for using a chart to try to predict the future?  Good, because I would never do such a thing.  Now, if we could only get those “experts” to stop doing the same thing with the first chart.

Hire an advisor.  Tell them your goals.  Allocate your assets to try to reach those goals.  Forget the rest.