Tuesday, March 30, 2010

The Trend Is Your Friend.....sorta

For many the investment experience which sticks in our minds as the "norm" is the 1980's and 90's when people were checking their IRA accounts twice a day and celebrating their investment skills. The fact that the broad market was up 1000% during the period was apparently incidental to our brilliance.

One of my favorite pictures for a 30,000 ft look at the markets has long been the Rydex Historical Trend chart. For a good perspective of stock market behavior, 113 years ought to give us something usable. Regardless of the alternating cheerleading and lamentations of Money Magazine, Bloomberg and dozens of other pundits, historical precedent is not found between station breaks.

Secular markets, that is, long term markets, are born of fundamental change. This could be a change in interest rates, changes in inflation expectations or demographics or valuation. Secular markets are not overnight sensations but rather long plodding affairs both upward and down.

Back in the late 90's I doubt there was not a retail adviser who didn't tell a client, "it's not timing the market, it's time IN the market." Since about the time that aphorism was hitting its high water mark, market buy and holders have lost just a bit less than 5% in the past decade.

When the investment advertising budgets reach fever pitch listen for those idioms, they are a canary in the coal mine.

(Click on image to increase size)

Given the current valuations on longer term historical averages and the challenges still confronting global economies I wouldn't be looking for the next upward glide path to start anytime too soon. And if you weren't IN the market last year be patient, and if you WERE in the market, moving to more a defensive stance would be prudent.

John Barnyak