An 8-year Bull Market
By some estimations the current bull market has been going for 8 years since the end of the great recession in 2009. Naturally, it hasn’t been a steady increase in economic growth and market valuations – 2011 wasn’t great, and we saw some heavy sell-offs in 2015, but for the most part over the past 8 years the stock market, in particular, has gone gang-busters. The private sector economy hasn’t been as robust over the past 8 years and that has probably been due to over-burdensome government regulations and uncertainty as to the future. From the open of the market on June 17, 2009 to the close of the market on June 15, 2017 the S&P 500 Index (a common indicator of the value of the largest domestic companies) has increased nearly 167% (that’s nearly 21% each year, on average!) That means that for every dollar that you invested in this index in 2009, you will have returned $1.67 at the close on June 15. That’s not bad considering every dollar you could have saved in an account returning just one-percent per year over that same period would have only grown to $1.08 and one-third of a penny.
The reason I bring this up is because we are in a precarious position. Our economic system goes through cycles. The economy expands until it hits a peak and then we experience a contraction, or recession, until we experience a trough and recover back into expansion and peak. This cycle repeats itself continuously like a broken record stuck on a particular track. The average time historically, from trough to peak has been about 5 years. The same has held for the average time from peak to trough, so our economy experiences a complete cycle every 10 years, on average. Now, a few things to keep in mind are that no economic cycle is ever the same and no economic cycle, or really anything for that matter, is like the average. Averages are simply a mid-point between highs and lows. Some economic cycles may last only a few years, while others may last several decades to complete. With that being said, we are experiencing a longer than average bull market. At 8 years now, our recovery and expansion may be getting a bit stale, but then it may still have some life in it to give, we just don’t know for certain.
The point is that since we don’t know what the future holds, it is wrong for us to believe we can predict what is to come. Therefore, I believe in a mostly passive approach to investing. Many active investors (those who buy-and-sell stocks regularly) ruminate over the future by examining statistical and observed data (the modern day equivalent of reading tea-leaves) to determine the future course of their client’s investments. Much research shows this to be a Sisyphean task whereby gains may be made in one period, but over the long-term the boulder always rolls back down the hill to start all over again.
Because the long-term trend of our economy is upwards, by taking a passive approach and not making dramatic short-term changes based on tea-leaf suppositions, we may be able to gain more ground than the typical buy-and-sell active investor.
This all means that whether we are in a stale bull market that is about to peak and then contract, or whether we still have more room to grow before the peak, we will stay the course and not make changes that can be risky for client’s long-term goals. Our portfolios are not full-proof against market conditions, but they are designed to lessen impacts of those conditions. I tell my clients that with the portfolios I design, you’re never going to hit a home run, but because we aren’t swinging for the fences were not likely to strike out either. We may experience an economic contraction in the near future, but for my clients, rest assured that we have constructed a portfolio designed to survive our economic system.