The High Cost of Being Out of the Market

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

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.


  1. What is the cost, according to the author, to investors of staying out of the market?
  2. The table above lists the reasons given for investors not investing in stocks. What evidence, if any, do you see that market timing works in this table?
  3. Is there a correlation between an investor's risk tolerance and the decision to stay out of the market?