When Will it End??

The honest truth is that I stopped paying attention to the stock market and economy a while ago. I just keep doing what I’m doing and check my balances every few months or so. It would be impossible for me to not be aware of the current market conditions, but I try to tune it out as much as possible.

I’m a believer in that if you keep your head and follow your initial strategy, you’ll come out ahead. That’s the Warren Buffett way, right? Invest when things look bad. No matter how bad things get, at least you’re buying shares cheaper than you did in the past. The U.S. economy is resilient and things will be greater than they ever were, right?

Well, now I’m starting to ask when.

These are truly historic times. Through August 2008, the S&P 500’s annualized 10-year gain was just 4.7%, which means there wouldn’t have been much of a difference if you just put your cash under your mattress.

Remember the good old days when the DOW was above 14,000 and you could make a bad bet in the stock market? Just buy stocks or mutual funds and watch your net worth grow. Well, now we’re back where we were about July, 2006. If you invest since then, you’ve probably lost money.

That’s a tough thing to face after all the discipline and organization it took to save that money in the first place. And if you’re looking at your retirement fund, that can leave you with a lot of questions.

The bottom has been falsely predicted many times over the past year or so, and things just seem to keep getting worse. What’s next and how far will the stock market go? Nobody knows - the stock market is completely unpredictable.

But one thing for sure is that at some point things will get better. Just like a company, it’s tough to keep growing and growing year after year. At some point you’ve maxed out all your profits and reached your peak. That’s when things start to go sour and profits start to dip.

But the best companies take this opportunity to reinvent themselves and become stronger. As a result they lead into the future with better product and stronger income statements. The economy is exactly the same, and at some point things will bounce back.

When it does, those who had the ability and the guts to continue to follow their investment strategy will come out way ahead. Some day you may look back and wish you were in the market on days like today.

These are the days that people like Warren Buffett were born.

4 Responses to When Will it End??

  1. Nicely said. My only concern is the S&P will flatline, like it
    did from 1960 to 1980 and all those people who chose index funds
    will be sitting on zero returns after investing religiously for 20

  2. Richard says:

    Just 4.7%? It would be hard to get that out of a savings account for most of the last 10 years. That’s actually a pretty good return considering the quality of the starting point. It also completely ignores the reality of investing.

    Matt: as you point out, if the S&P 500 is at the same level in 20 years it certainly wouldn’t be the first time it happened. But having no return over that period is highly unlikely. That would have to mean prices don’t change at all over that time period (if they go down you’re buying at a discount and you profit when they return to normal - if they go up you just made a profit on your earlier purchases), there’s no dividends at all for the next 20 years, and we’re talking about someone who owns one asset class.

    When will this end? Only when people acknowledge the real value of the businesses in the market - then we can get back to growth and profits. There’s some intelligent people who believe the fair value of the S&P 500 is around 1100 by 2010. If that’s the case, the sooner we get to that level the better. We may be only a couple of weeks away.

    Warren Buffet himself pointed out that if the average expectations of stock market growth happened consistently over the next century the indexes would get to levels that are hard to believe in that time. But if that’s based on the S&P starting out 20-40% above its real value, then a quick correction is all we need to make future growth expectations much better. As so many people forget, when you’re planning to buy stocks for a long time you want it to be at a discount not at a premium!

  3. Stockpicker says:

    Get out of the STock Market NOW! We are heading into the first depression since 1929. Stocks are going LOWER and there will be no recovery until 2016. Just like those that said you can’t lose money in real estate were wrong, so are those that say now is a good time to buy cheap stocks. Wrong. STocks can still go lower. MUCH lower.

  4. I’m interested to know Stockpicker - how do you know that the market will recover in exactly 2016?

    As a lot of you noted in the comments - there have been times when market is flat for a prolonged period of time.
    To get the most out of these times I would definitely look into buying dividend paying stocks.
    If the stock price stays the same for 20 years you will still get the dividends and if it eventually rises you will get an even nicer profit!

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