Wednesday, February 15, 2017

When it comes to the stock market...

...I'm what you'd call a "permabull." I've been pretty much fully invested in stocks for my entire working life and have been reasonably satisfied with the results.

Why am I so bullish? Because history has shown that, over time, equities outperform all other asset classes. More than bonds? Yep. Real estate? Keeps pace mostly with inflation. Gold and other precious metals? For suckers. Cash? Nope, unlike the famous saying, stocks are king.

My whole approach to investing is simple: invest according to your age. In other words, beginning when you're young sock away as much as you can in an IRA or 401(k) and invest it all in index funds. (I'm also a believer in "passive" investing. While you will never "beat" the market -- or have any good stories to tell at cocktail parties -- you will "beat" everyone else who is trying to "beat" the market.) Then, when you get within about ten years or so of retirement, start selling ten percent of your holdings each year and reallocate it into bonds or cash. If you run into another 2008 you should either be mostly out of the market if you're older or young enough to ride it out.

And that's pretty much all I have to say about investing. KISS: Keep It Simple, Stupid.*

(By the way, don't pay a lot of attention to all those stories your friends and relatives tell you at those cocktail parties; remember, they never tell you about their "losers." Unless you live down the street from Warren Buffett, you will probably never meet anyone in your entire life who has actually beaten the market over time.)

So, having said all that, why am I bearish right now? True, I sold ten percent of my stock holdings on January 9 and you could say that, at age 58, I'm just following my own investment advice. And, while it would be reasonable to assume that I'll be retired in ten years, I actually think more like my father did: I hope to work until I drop -- what else would I do all day?

No, the reason I'm pessimistic is in those two charts, above. (I wish I could have found better ones, but they'll have to do.) And the thing to look at is the bear market from Nixon's reelection in 1972 to his resignation in August, 1974. Do I think that Donald Trump will resign or be impeached? I'm not sure, but you have to admit so far his administration is a complete shit show. And, what's more, I don't expect things to get a whole lot better any time soon. Will the Donald dump Reince Priebus for a new chief of staff? Give Steve Bannon his walking papers? Replace Kellyanne Conway and/or Sean Spicer? Doesn't matter; the problem for Donald Trump is in his shaving mirror every day.

So, yeah, I sold ten percent of my stocks last month and parked the dough in cash. And, so far, I've left some money on the table. But who, in their right mind, would buy stocks (or bonds) at all-time highs with a complete incompetent in the most consequential job in the world? And there hasn't even been a crisis yet! (Imagine how the Donald would react to even a relatively benign one like the BP oil spill in 2010 -- and that went on for five months!)

So what's going on with the stock market? Why have I been so wrong in 2017 so far? Are the markets anticipating a tax cut? That's reasonable to assume. Bank deregulation? Also reasonable. Massive infrastructure spending? Now you're getting more into "reach" territory. (I actually think the Trump administration will get very little done at all.)

Now maybe all the titans of industry are just tuning out the madman in the White House and going about their business of producing widgets like they always have. Maybe the American economy is just too darned strong for someone like Trump to goof up. Or maybe, like the guys calling for a housing bubble before 2007, I'm right, if just a little early.

I hope I'm wrong, though. I hope when next year rolls around I can sell ten percent of my stocks at even higher levels. We'll see. But in the meantime I'm not optimistic.

*Am I right or am I wrong? I'll let you decide; but I can honestly say that, unlike almost every other aspect of my life, I have no regrets in this area.

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