Risk On, Risk Off
I feel like Danny LaRusso: Wax on, wax off. The market is like Mr. Miyagi. One day everything is in the red, the next day everything is in the green. One day "the market is down because of x, y, z," the next day "the market is up because of a, b, c." Purportedly. Except that unlike with Mr. Miyagi it all feels like a crock of sh!t to me. I have never been so depressed as I am today to see everything I own (temporarily) in the green today (after all but two or three were in the red yesterday, and all but one was in the red on Friday). Really?!?!? Really!?!?! I ask myself. Are things changing that much on a daily basis? Of course not. We are 100% in the hands of the algorithms and the algorithmic traders. Risk on (buy stocks, sell gold and bonds), risk off (sell stocks, buy gold and bonds). I have no problem with that philosophically, and I don't know that it is a bad thing for the market even. But stock-picking feels almost pointless right now. I know it's not really. But I feel like we are in the twilight zone. Half are convinced we are at a bottom and corporate earnings reports this fall will drive stocks up. Half are equally convinced that the downward revisions to earnings have only just begun. Nobody is euphoric. Many are depressed, but nobody has thrown in the towel. Thus, even contrarians have no clear tides to fight against.
Can anyone provide any past market analogies? Here is how it feels to me: 2000 was like October 1965. We may have a long, long time yet to go before the next top is reached and permanently breached.
What's interesting to me is how often this happens: LONG PERIODS OF EXTREME GAINS AND LONG PERIODS OF EXTREME STAGNATION ARE THE NORM, NOT THE EXCEPTION.
-- The market went nowhere (ex-div) from January 1937 to July 1949. Nowhere, for 12 years.
-- From the peak in 1928, the market went nowhere until 1954 (ex-dividends)!
-- The market when nowhere from 1965 until 1981. 16 years. Nowhere.
So where do the 1999 and 2007 euphoric peaks fit in? How many more years of market and general stagnation do we have? I don't know. What I do know is this: The time to buy is in the time of stagnation and nonsense, late in it. Since I don't know what late is, but I do know that lots of high quality companies sell for decent prices for the first time in a decade or more, I can only surmise we are at least halfway through. It may take two more years to work this off. It may take ten. It's an interesting insight though for me, which I have had over the last year or two, to think that all of the major gains of an investor's lifetime may occur in ten years of that lifetime. Period. All of them, at least on the capital side. Start in 1928 and you may see none at all. For your entire investing lifetime, at least on an indexing level. That's pretty sobering. Just you hope October 1999 was not July 1929....
Which brings me back to Mr. Miyage. There seems to be no reason to believe that the market (and by extension the psychology of all of us that drives the economic relationships that drive profits and losses) do not operate similarly in large time-frames to the way they/we operate on a daily basis. A day of green. A decade of green. A day of red. A decade of red.
It's for these reasons that I tend to favor solid dividend stocks, that increase their dividends, and with reinvestment of dividends. Not exclusively. But I favor them. You can survive ten years of no capital gains if you are getting three to four percent in dividends; and when the next boom comes, those stocks are going to shoot up to absurd P/E ratios as well. You can also be the genius who buys Apple and Amazon in 2002 and never sells them (me: bought Apple at under $15/share, sold between $20 and $22, = f^cking moron). But what if you're not?