The previous chart reveals the long standing secular moves of the markets; What’s an investor to do during one of the long periods of weakness?
One answer is to learn to be more nimble, and trade the cyclical markets.
Dow Jones Industrial Average, 1966 – 1982
click for larger chart
data for chart courtesy of Bloomberg
During this period, we see rallies as much as strong as 75% and sell offs as brutal as 45%.
This is not a goo9d environment for the Buy and Hold approach. It works well ONLY during secular — not cyclical — Bull phases. You can hold stock for decades if you buy into the early stages of a secular period. Think of the years right after 1935, 1946 or 1982. But if you by at the wrong end of a secular run — 1929, 1966, or 2000 — and it took many years to get back to breakeven; and thats before inflation:
1929 purchase breakeven = 1954 (25 years)
1966 purchase breakeven = 1982 (16 years)
2000>(breakeven = ?)
History suggests that a top ticking Nasdaq holder will not return to breakeven — 5100 — until between 2015-25
Investing —More of a Challenge
Yet another look (see prior takes here and here) at the concept of market cycles. The past century shows alternating Bullish and Bearish phases, secular periods each lasting for an extended time (between 10 to 20 years). > Dow Jones Industrials, 1903 – 2004 Note that markets are up slightly for 2005 since this chart…Read More