by Lance Roberts, Clarity Financial
Here are some interesting stats from Adam Taggart via Peak Prosperity:
- It has been over 100 months (more than 8.5 years) since the current bull market began in April of 2009
- It has been 15 months since the last (and very brief) drop of 5% in the S&P 500
- This past September saw record low volatility, including a stretch now claimed to be “the most peaceful days in the history of the markets“
- Since last year’s presidential election, at which point the markets were already considered dangerously overvalued, the Dow Jones Industrial Average is up over 20%
- As of this article’s publishing, the Dow, the S&P, and the NASDAQ are all trading at record highs
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Or visually:
Adam goes on to state:
“The stock market is now 70% higher than it was at the previous bubble peak immediately preceding the 2008 Great Financial Crisis.
Reflect for a moment how painful the crash from Oct 2008-March 2009 was. How much more painful will a crash from today’s much dizzier heights be?
Prudent investors have asked themselves that very same question as the markets have become increasingly overvalued over the past 8+ years. Many of them – myself included – concluded that the future risks greatly outweigh the prospect of future returns, and pulled much of their capital out of the markets onto the sidelines. And since doing so, many of them – again, myself included – have watched prices climb higher and still higher again.
It’s understandable to feel great frustration both at the irrationality of today’s market prices and at the emotional sting of missing out on the gains they’ve been delivering to those who have blithely remained long.
But it’s very important to remember we’ve been here before many times throughout history (and pretty recently when reflecting back on the Tech and Housing bubbles). While today’s levels are at a historic extreme, markets have always swung from periods of overvaluation to undervaluation – and then back again.
During the peaking process, the siren call to join the party is incredibly hard to resist. Waiting out the irrational exuberance leading up to a market top is painful. Profitable returns are everywhere. How can you turn down making such easy money?
As Tom Petty sympathized: The waiting is the hardest part.”
The “siren’s song” of tax cuts and tax reforms will likely turn out to be the very rocks this ship cracks up on. The potential for disappointment dramatically outweighs the potential of Congress meeting the current expectations of the market participants.
As I noted in the 80/20 rule of investing:
“Importantly, as a portfolio manager, I am buying the breakout because I have to. If I don’t, I suffer career risk, plain and simple.
However, you don’t have to. If you are truly a long-term investor, you have to question the risk being undertaken to achieve further returns in the market.”
While we remain long the market currently, we are doing it with a very keen eye towards the risk we are taking. We continue to carry tight stop-loss levels and are de-risking portfolios by trimming exposures as needed and being opportunistic with our fixed income exposure.
As I concluded previously:
“However, the longer-term dynamics are turning more bearish. When those negative price dynamics are combined with the fundamental and economic backdrop, the “risk” of having excessive exposure to the markets greatly outweighs the potential “reward. “
While it is certainly advisable to be more “bullish” currently, like picking up a “porcupine,” do so carefully.
Investing is not a competition.
It is a game of long-term survival.”
