Investor Excuses Then and Now
By Doug Fabian
There's no end to the excuses that people dream up for not investing in the stock market. Either it's too high, or it's too low. Either interest rates are going up, or corporate earnings are trending down.
For some would-be investors, conditions just never seem to be right. This is especially true of those who try to second-guess the market, which is just about the biggest mistake any investor can make.
There's an old Wall Street saying that goes: "The market will always act in such a way as to frustrate the greatest number of investors." Just when you think it's going to zig, it zags.
Go figure!
As we pass the seventh anniversary of this long bull market, the bears are eager for vindication. They're licking their chops in anticipation of a big plunge in stock prices.
The market's daily swings are fueling the uncertainty. And as volatility increases, so does the human need to find solace in market predictions. But with all that's going on today, not even the most quoted market seers agree on what will happen next.
As the table below shows, most excuses are based on fear--fear of loss, fear of the unknown, but never it seems on fear of lost opportunity, which is exactly where a successful investor's attention should be focused.
Excuses, excuses, excuses
| YEAR | REASONS PEOPLE GAVE FOR NOT INVESTING | S&P PERFORMANCE |
| 1977 | 1977 Market slumps | -7.18% |
| 1978 | 1978 Interest rates rise | 6.56% |
| 1979 | 1979 Oil prices skyrocket | 18.44% |
| 1980 | 1980 Interest rates at all-time high | 32.42% |
| 1981 | Steep recession begins | -4.91% |
| 1982 | Worst recession in 40 years | 21.41% |
| 1983 | Market hits new high | 22.51% |
| 1984 | Record Federal deficit | 6.27% |
| 1985 | Economic growth slows | 32.16% |
| 1986 | Dow nears 2000 | 18.47% |
| 1987 | October market massacre | 5.23% |
| 1988 | Election-year jitters | 16.81% |
| 1989 | October "mini" crash | 31.49% |
| 1990 | Persian Gulf crisis | -3.17% |
| 1991 | Berlin Wall tumbles | 30.55% |
| 1992 | Global recession | 7.67% |
| 1993 | Slow recovery | 9.99% |
| 1994 | Market downturn feared | 1.31% |
| 1995 | Market downturn a certainty | 37.43% |
| 1996 | Market too high | 22.96% |
| 1997 | (YTD) Market still too high | 26.90% |
What are you waiting for?
Stock market bulls were on vacation in August as bears sent the Dow down 7.3%. This prompted investor fears and media speculation that a major decline had begun. It's true that difficult transitions are taking place, but for investors, they are all positive.
While I will not predict the market's next move, I do have evidence that appears to be bullish. Specifically: If we were witnessing the start of the bull market's demise, stock prices in all categories would be falling in varying degrees across the board, with small-cap equities leading the decline. But we're not. And this is my point.
The positive news in the recent market correction was the vigorous performance in aggressive growth funds. Small-cap issues exhibited strength in the face of blue-chip declines. The Dow Industrials retreated 7.3% from their performance peak of 8259 on August 6, while the Over-the-Counter Industrials, a leading small-cap indicator, were up 1.85%. These are not the symptoms of an ailing bull, but are important signs that may mark the beginning of a new cycle in which mid- and small-cap stocks edge out the big guys as market leaders.
Two funds I like right now that play into this market dynamic are Neuberger & Berman Genesis and U.S. Global Bonnell Growth.
Questions: