Two Startling Delusions About the Current Bull Market
Newsflash: Ever since March 2009, we’ve been in a bull market.
Before you utter a sarcastic – “Thanks, Captain Obvious!” – take note:
According to a recent survey by Franklin Templeton, roughly half of investors think the S&P 500 Index was down each of the past three years.
- 66% thought stocks dropped in 2009. (Wrong! They rose 26.5%).
- 48% believed stocks plunged in 2010. (Wrong again! They rose 15.1%)
- And 53% were certain stocks fell in 2011. (Still wrong! They rose 2.1%)
And you wonder why I set out to bust conventional wisdom and market myths every Monday?
A need for it clearly exists.
After 43 months of the market rallying, how can so many investors remain clueless? Maybe we can chalk it up to sampling error. After all, Franklin Templeton’s no Gallup or Rasmussen. It’s a money management firm.
Just in case the findings are legitimate, though, I suggest you forward the handy graphic below to your family and friends to make sure they’re not similarly misinformed.
While you’re at it, be sure to let them know about an even more important (and pressing) myth about bull markets…
Too Little, Too Late?
As of Friday’s close, we’ve officially been in a bull market for 1,307 days – making it the ninth longest on record.
With a gain of 108.9% over that period, it also ranks as the ninth strongest on record.
Conventional wisdom says that if you’re not invested yet, don’t bother. You’re too late. Why? Because Wall Street routinely says the majority of profits are heavily concentrated in the earlier years of a bull market.
Sorry. I have a hard time accepting things at face value. So I dug into the numbers. And guess what? It’s definitely not too late to join the profit party.
In five out of the eight bull markets that lasted longer than the current one, returns in the second half equaled – or topped – the returns in the first half.
Clearly, being early is not a prerequisite for profits.
Seeing that we’re three years in, I also broke down the returns of prior bull markets by year. The result?
The first thing you should notice is that, traditionally, the third year of a bull market is a slow one.
So the 3.8% rise for the S&P 500 Index from March 9, 2011 to March 9, 2012 is perfectly consistent with history. (Not an indication that the current bull market was losing steam, as so many pundits suggested.)
More important, though, is the fact that average returns in years four, five and six hardly qualify as paltry. In other words, if the next three years end up being profitable, investors should expect to be compensated. Handsomely.
Lastly, since the current bull market is 1,307 days old, I measured the return for past bull markets from the same point forward. Again, the profits are nothing to bemoan – with most upticks solidly in the double digits.
Bottom line: The Wall Street myth that bull market profits are reserved for the earliest investors is precisely that. A myth.
So don’t be fooled into thinking it’s too late to invest.
Some of you are bound to contend that the relevance of Exhibits B and C hinge upon the current bull market continuing for the foreseeable future. Fair enough.
I also know that there’s plenty of overeducated pundits out there warning that there’s no way the current bull market can continue.
But if you’re willing to entertain their theories, I ask that you extend me the same courtesy. Because tomorrow, I’m going to share 10 reasons the stage is set for stocks to rally into year’s end (and beyond).
So stay tuned.
Ahead of the tape,