This article was published by The McAlvany Intelligence Advisor on Wednesday, April 4, 2018:
Sean Williams, writing for The Motley Fool newsletter, has given his readers what he calls “the closest thing you’ll ever get to a surefire stock tip”:
Since January 1, 1950, the S&P 500 has undergone 35 corrections whereby its aggregate point value has fallen by at least 10 percent….
Here’s the key point: all 35 of those stock market corrections have been completely erased within a matter of weeks or months (and in rare cases years), by a bull market rally.
I repeat, in 35 out of 35 instances since 1950, the S&P 500 has erased any stock market corrections totaling 10 percent or higher at some point in the future.
That’s a 100 percent success rate over nearly three dozen data points.
Buying any major dip in the S&P 500 is about as close to a guarantee as you’re going to get when it comes to investing in the stock market.
An investment advisor in Colorado Springs requires that his clients promise not to turn on CNBC during the day, but instead concentrate on living life. As a result, he says, he almost never gets a call during market downturns because his clients are focused on more important things.
Other investors, however, are no doubt calling their brokers following the news that the nine-quarter winning streak in stocks came to an ignominious end in March, with the Dow losing 616 points during the first quarter of the year.
It is helpful to remember at least two things: during that nine-quarter run, the Dow gained an eye-opening 8,400 points, nearly half of the 18,000 points it has gained since 2009. Secondly, there was a similar run 20 years ago with reassuring and comforting results. From 1995 through 1997, the market notched 11 straight quarters of gains in the S&P 500 (SPX). That run also ended with a thud. But the very next quarter the SPX gained 11 percent, and by the end of 1999 it had increased in value by 45 percent.
For those needing more comfort, investment newsletter writers are almost to a man bullish for the rest of the year. For those who like math, the price-earnings ratio (P/E) on reported earnings traded above 23 in January, way ahead of its five-year average of 18. Now the P/E for the SPX is below 20.
And this is reasonable when taking into account that forward expected earnings for the SPX is 15 percent for 2018.
There’s the Dow Theory for those who follow the market’s oldest and most reliable market-timing tool. When the market broke down in February and then rebounded, it declined again but never touched new highs. When it declined again, the Dow Jones Industrial Average pierced support but the theory’s sister trigger, the Dow Jones Transportation Index (DJT) didn’t. So Dow Theory says the bull market remains in place.
There’s Ed Yardeni’s company, Yardeni Research, which reports that, over the last 31 years the Standard & Poor’s 500 Index has experienced 23 declines of five percent or more. Only three of them have turned into genuine bear markets (when that S&P 500 Index has lost 20 percent or more of its value).
Finally, there’s the futility of trying to time the market. As Sean Williams noted:
According to a study by J.P. Morgan Asset Management, buying and holding the S&P 500 between Jan. 1, 1995, and Dec. 31, 2014, would have netted an investor a 555% return, which works out to almost 10% per year. Mind you, this stunning gain occurred despite holding through both the dot-com bubble bursting and the Great Recession.
Comparatively, missing just the 10 best days out of this more than 5,000-day trading period would have more than halved your 555% gain. If you missed a little more than 30 of the best trading days, your gains would have completely disappeared.
Perhaps that investment advisor in Colorado Springs is right: don’t worry about such unimportant things and concentrate instead on living life.
Fool.com: A Foolish Take: Why the Bull Market Could Survive 2018’s Slump