Is this long term bull market different from those of the past? No.
Are things really different this time around? No.
This phrase comes into play when markets go through periods of major declines and gains. Think of the losses during 2008-09 or the huge tech increases in the late 1990s.
History and academic research teaches us that “it’s not different this time,” even if you may feel that it is.
As in the past, patient and disciplined investors will do best by adhering to their investment plan and a well thought out strategy.
Those who actively trade or try to time the market will most likely do worse than those who focus on the long term.
Investors who focus on low costs and diversification, such as asset class funds like we recommend, will have a greater chance of success. Data shows that lower investment costs are correlated with better performance.
Will this market end up in a bubble? It is possible. But no one can accurately predict exactly when this may occur. Even if they could, would they also be able to predict the bottom to get back in?
A bubble or temporary peak is somewhat normal for stock market activity. So are declines and corrections. The highs are generally too high and the lows are too low. Over time, the world’s stock markets continue to reach new highs and investors reap the rewards, even if they are interrupted by sharp, temporary declines along the way.
Investing may seem easy today, when markets are increasing. When the next major decline occurs, and major declines will occur again and again in the future, remember these words. It will not be different then. Each decline may seem scary and unexpected. How and when the market will recover may seem unclear. Negativity and fear will be everywhere. Most people will think it is actually different this time. But you will know it is not truly different. Just the specific circumstances will be different. That is when this historical perspective will come to your aid. We will provide you with rationality during the uncertainty. We will remind you that optimism is the only realism.
The stock market today has some individual stocks which appear to be quite overvalued. This has been the case for some individual stocks for many years. But individual stocks are not a game we feel is worthwhile to play with your serious money. Investors who buy these hot large cap growth stocks may be successful, but they also are at much greater risk when the next downturn occurs or when one of these companies incurs an earnings miss.
At the same time, there are many asset classes and individual stocks which are more reasonably valued. As no one can accurately predict in advance when an individual stock or asset class will rise or fall, we will continue to recommend that our clients remain invested in a globally diversified portfolio using asset class mutual funds, according to their personal Investment Policy Statement.
This time is not different. There will be a correction at some point. But we have not advised our clients to wait on the sidelines for that to occur. In the words of legendary mutual fund manager Peter Lynch, “far more money has been lost by investors preparing for corrections or trying to anticipate corrections than has been lost in corrections themselves.”
Our goal is to provide you with advice which will enable you to secure a real-life outcome superior to that achieved by the vast preponderance of your peers. This is different.
This week’s takeaway: Stock markets increase over time. Corrections and significant declines will occur, but they will be temporary and the markets will recover. The cause and timing of these corrections cannot be predicted. During these times, when the markets are down and many others say “this time it’s different,” it will not really be different.