Once in a Lifetime

What if the 25-year bull market in US stocks was an aberration...?

TWELVE MONTHS AGO I was getting calls from old friends saying that they were scared to be in stocks any longer, writes Chris Weber in Daily Wealth.

These were people who just had bought and held for decades. In fact, a year ago was the right time to start buying stocks, not selling them.

Nowadays, I see the opposite comments. People are proud to own stocks. Of course they are...since they've risen 60% in the past year.

As one reader put it in a Feb. 24th review of my Weber Opportunities Report:

"I am a traditional market investor, dividing my investments primarily between stocks and mutual funds."

Now, I'm no Sherlock Holmes, but a sentence like this tells me that this reader is middle-aged at the youngest. And it all makes perfect sense, really.

Take a person who started investing in 1982. From then until 2007, he'd had a full quarter-century of gains. If the market fell, as it did in 1987 and again from 2000-2002, it always snapped back.

The fact that a 25-year bull market for stocks had never happened before in history that probably means little to him. After all, it happened to him. It was the experience of his entire life.

But what if a 25-year bull market was an anomaly...a once in a lifetime event?

For someone who, say, turned 30 around 1982 and is now nearly 60, this is a hard thing to contemplate. All your life things have been a certain way. You've come to accept them as normal. Any change is thus temporary. That is, until it isn't, and you are left holding on to past dreams.

I've seen this happen several times over my life. As a kid in the late 1960s, I listened to investors who had ridden the great stock bull market from 1949 to 1966. The Dow soared from about 150 to 1000 points during those 17 years, a great rise of over 550%. They thought it would last forever, and when the Dow briefly touched new highs of over 1000 in early 1973, they all thought they were back to the races.

In fact, they were in for hard times. By mid-1982, the Dow was well below where it had been in 1966.

Then came the people who had gotten rich in the precious metals markets during the 1970s. Silver soared from $1.29 to nearly $50 an ounce...a rise of over 6000%. Gold rose by 2300% from 1971 to 1980. And for many people, all through the 1980s, they waited for what they thought was a temporary correction to turn into a 20-year bear market. Many held all during this period with only hopes and memories to sustain them.

I believe we are seeing the same thing now with those who hold stock-market shares as a huge portion of their total investments. Getting back to the reader quoted above, his use of the term "mutual funds" already dates him from the time when these were every investor's dream. Younger investors well understand that with mutual funds, you are paying managers a fee that is too high for what they give back. Exchange traded funds, or ETFs, accomplish the same thing at a much lower cost.

And to say that you are diversified between stocks and mutual funds is to say that you are not truly diversified at all. A recent letter to me from another reader shows he understands this. A new reader, he comes on with 2% in cash and 98% in stocks, and he knows he has too much in stocks.

In my way of thinking, the stock market has given a rare reprieve to those who hold most of their money in it. This is a time to be moving out. You don't even have to abandon the stock market entirely (though I myself very nearly have). You can just lower the percent you hold in stocks to 33% or so.

Cash and physical metals such as Gold Bullion and silver could make up the other two-thirds. You can have some precious metals miner stocks, but try to arrange things so that you own them with as little risk as possible, and have patience. A new leg down in the general market could take down all stocks, even the Gold Mining stocks.

I know it can be hard for people to visualize what they grew up with completely being turned on its head. But investment history teaches us that this is exactly what happens, time and time again.

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