The bull market in stocks turned seven years old this week and nobody noticed. The Wall Street Journal pointed out the anniversary, then proceeded to ask why aren’t people more excited? Of course, the article cites a long list of things to worry about as the reason. It’s not necessarily wrong, but it’s not right either. There’s always something to worry about.
The real reason is much simpler. It’s hard to get excited about something you missed.
The market pendulum swings from boom to bust, optimism to pessimism, aggressive to conservative. Most of the time, the swing stays within a healthy range. The bigger booms – like the dot-com boom or Housing Bubble which sent the market reeling – swing the pendulum to the opposite extreme.
Investors became extremely conservative after 2008. For most of the last seven years, the story hasn’t changed much. Naysayers expected a double-dip and a second crash to follow.
The story at the time followed the same script after ’29. It stood to reason it should happen again? That was one theory. The other is that things don’t perfectly follow the past. Yet, every market pullback since 2008 came with the unfriendly reminder that it could happen again. The pundits certainly treated it that way. The market seemed to tease and taunt skittish investors into believing it too. (This compounds at both extremes, where investors start to believe the market only moves in one direction.)
Seven years won’t erase that emotional bad memory from people’s minds. Eight years won’t either.
After the ’29 crash, it took two decades and the end of WWII before investors really came back to the stock market. Essentially a generational gap. (WWII probably played a bigger role in shifting the mindset of the time).
Will it be the same this time? Maybe, maybe not.
The extreme differences between then and now, just on the basis of saving for retirement, might speed up the process. But I wouldn’t be shocked if it happens again.
Maybe the Millenials get the ball rolling as their retirement savings climb. Maybe the Aughts (or whatever the generation after millennials is named) get the pendulum swinging again.
But the pendulum will swing back. It always does. If history tells us anything, is that investors eventually forget.
Everbody swears off such inexcusable extravagances – until next time. – Ben Graham
Last Call
- Get 5% Better – Farnam Street
- Read More Books And Fewer Articles; Read More History and Fewer Forecasts – M. Housel
- The Greatest Lessons Investors Can Learn From History – Latticework
- When Measures Become Targets: How Index Investing Changes Indexes – Investor Field Guide
- What You Don’t Want to Hear About Dividend Stocks – M. Faber
- Is Passive Investment Actively Hurting the Economy? – The New Yorker
- A Conversation With Robert J. Shiller (video) – CFR.org
- The ETF Files: How the U.S. Government Inadvertently Launched a $3 Trillion Industry – Bloomberg
- I’m Bill Gates. Ask Me Anything – Reddit
- Inside the Artificial Intelligence Revolution – Rolling Stone Pt. 1, Part 2
- Get Your Taxes Done Early and Save with TurboTax
