Mark Hulbert, 8 hrs ago (3/24/15)
Confident you’ll know it when this incredible bull market tops out?
I doubt it.
Actually, I’m confident you will have not a clue.
Consider the stock market top that occurred 15 years ago this week. I am referring to the S&P 500’shigh on Mar. 24, 2000 — two weeks after the Nasdaq Composite’s bull-market high. After adjusting for inflation, and even after reinvesting dividends along the way, the broad stock market took more than 13 years to make it back to its March 2000 high. That’s longer than the recovery time from all but one other bear market in U.S. history.
In other words, the bear market that began on Mar. 24, 2000, was one of the very worst in history. If ever there was a time for stock market timers to acquit themselves, that was it.
Care to guess how many of the stock-market timers then monitored by the Hulbert Financial Digest called that day’s top — in other words, timers who had been bullish up until that week and then went substantially to cash?
Zero.
In contrast, there were a number of market timers who during that week increased their equity exposure. In fact, the average recommended equity exposure among monitored short-term stock market timers was at a multi-year high on the day the bull market ended.
In short: There was nothing about the market’s behavior on Mar. 24, 2000 that suggested that a 13-year bear market was about to begin.
I spent a depressing day earlier this week reviewing the comments made on or about Mar. 24, 2000, by any of the stock market gurus monitored by the Hulbert Financial Digest. Here’s a sampling of what they were telling their clients on that fateful day:
“All my work strongly suggests that for now the corrections in the NYSE and the NASDAQ are over and that the serious buyers will come in.” Bert Dohmen, Wellington Letter, 3/22/2000.
The market’s recent action “convinced us once again that the Internet stocks are alive and healthy.” Carlton & Timothy Lutts, Cabot’s Internet Stock of the Week, 3/27/2000.
“Our best bet is for a choppy to down market next week, but we would not anticipate a top of any real significance... We continue to look for higher prices well into the summer on the important indices.” Stephen Todd, 3/24/2000.
“The Internet will never stop growing, so stay fully invested in our recommended stocks.” Donald Rowe, Wall Street Digest, 3/24/2000.
I could go on, but you get the point.
This isn’t to say that there were no bears in late March 2000. Though they were in a small minority, there were a few. But they had also been bearish for some time, so we can’t say that they “called” the top.
Let me hasten to add that there are good investment advisers out there. But what makes them good is not their predictions but their strategies for dealing with an uncertain future.
So keep this in mind as you contemplate the eventual end of this bull market. Odds are overwhelming that you won’t know that a bear market was started until well after the fact.