I know some of you don't believe me when I say to expect an extended trading range in stocks for at least the rest of the decade, or that at best we should expect returns on the order of 5-7% after this trading range is through. But I continue to find evidence in history that demonstrates just how unique a period our last bull market was (I am going beyond the 90s bubble here). If you grew up investing/trading/speculating during this time, it is likely you have grown up with poorly calibrated expectations about stocks. I am pasting another clipping that shows how poorly stocks have performed against Treasuries over the last EIGHTY years. It is amazing how if you pick your timeframes correctly, you can make any argument you want about whether stocks are good over the long-term. I obviously have biased my missives to studies that show just how risky stocks can be rather than the stuff you regularly get fed from the buy-and-hold proponents.

Overall, all this tells me is that market TIMING, NOT buying and holding, is the key to excess returns....and note that market timing does not have to mean buying and selling every week or even every month. For example, the S&P was sitting at 100 back in 1982 when the last bull market began. If you bought a basket of S&P stocks (or the index itself) back then, you are STILL sitting on a 10.5% annualized gain from then to now. Even after adjusting for inflation, you could be quite content. This is VERY respectable since the long-term average return is supposed to be about 7-8% (not adjusted for a typical 3-5% inflation rate). Heck, you could watch this bubble collapse ANOTHER 25% and STILL come out with a 9.0% long-term return and be well-ahead of the inflation rate!!! Pretty sweet, huh? But woe be unto those of you who started investing in the last 6-7 years. You are about even now or maybe a sliver ahead. The market is going to have LEAP far and high SOON for you to even have a prayer of coming close to 9 or 10% annualized return.

Hey, let's do the math. Here are the scenarios under which you could realize a 10% return assuming you had bought everything during the LOW in 1997 when the S&P was at 731:

If you cannot read the formatting of the table above, I will pull some choice examples. The S&P must DOUBLE by 2005 for you to get that juicy 10% return from the lows of 1997. And if the S&P doesn't reach that feat in the next two years, then you can still get 10% returns if the S&P TRIPLES by 2009. Do you begin to see how much the odds stack against you if you were "unlucky" enough to have only begun buying and holding during the later years of the bull market? Of course, these figures can change for the better or the worse if you have been investing at regular intervals during this timespan....it all depends on the timing.

___________________________

From

MONDAY, MARCH 17, 2003

UP AND DOWN WALL STREET

Mind Over Matter

By RANDALL W. FORSYTH

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