React to them at your own peril
BEARS MAKE HEADLINES & BULLS MAKE MONEY.
BOTTOM LINE: The Doom-and-Gloom Report should be renamed The Bloom and Boom Report – and a chart of the major US equity market indices covering any 20 year period in history will conclusively show that. In fact over the past 75 years every single 5 year period was positive. Don’t confuse air turbulence with a plane crash, even though they feel the same when they start.
Hardly a month passes without some “respected pundit” pontificating on the coming collapse of the stock market or the US Dollar. These apocalyptic warnings are becoming routine and yet we regularly get panicked emails and calls from clients who read or hear this drivel and become alarmed.
Here are some of the more famous examples:
- Dow Could Crash to 3,000 in 2013 — Harry Dent (09/12/2011)
- Dow Dropping to 5000 Starting This Year: Charles Nenner (03/04/2013)
- S&P 500 May Fall More Than 40% By Fall: Chris Martenson (04/10/2013)
- Look Out! A 1987-Style Crash is Coming — Marc Faber (08/08/2013)
- The Case for a Crash: And for Staying in Cash Until 2015 — Charles Hugh Smith (12/10/2013)
- The Next Two to Three Days Are ‘Extremely Critical' For The Stock Market —
It May Crash 40% - Tom DeMark (02/5/2014)
- Get Ready for the Dow at 6,000 by 2016 — Harry Dent (03/03/2014)
Whenever a client refers to an article of someone calling for a crash we respond with a question: How many crashes can you list over the last century?
Here’s the definition from Investopedia:
Definition of 'Stock Market Crash
- A rapid and often unanticipated drop in stock prices.
- A stock market crash can be the result of major catastrophic events, economic crisis or the collapse of a long-term speculative bubble.
- Well-known U.S. stock market crashes include the market crash of 1929 and Black Monday (1987).
Think about that, we have had two real market crashes occur in the last 100 years, which works out to about one every 50 years. If they are so infrequent, then why do we hear so much about them?
Here are 2 reasons:
- Investors remember pain more intensely than prosperity and most can still feel the 2008 catastrophe in their marrow. In fact many have been on the sidelines since then and are unaware of the stellar tripling of market prices since then.
- People often crave attention and can easily get headline coverage by making bold outrageous forecasts (whether they turn out incorrect or not)
THE RVW THOUGHT FOR THE DAY:
Money managers are not paid to forecast. Money managers are paid to adapt. Unfortunately, adapting to this ever-more rapidly changing world is not always easy — but there is no other recipe for making money in today's world.
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