Never Buy Stocks Again? Seriously?
Interesting article on CNN Money this afternoon which really sings the tune that we have been singing for the last decade. In a secular "Bear" (long term) market owning equities is not a good thing. The time to buy equities for the "long term" (more than 15 years) is when valuations are below 10 times earnings and absolutely no one wants anything to do with the market. Obviously, today, with valuations north of 20 times earnings and speculative frenzy reaching a fevered pitch - we are not at that point yet. However, we might be getting there.
In a recent poll by Prudential of more than 1000 investors between the ages of 35 and 70 they found that more than 58% of those surveyed have lost faith in the stock market. Of course, after two nasty bear markets and negative returns for the past decade this is not surprising. Even more importantly, 44% said they will NEVER invest in stocks again, ever.
That is actually good news to hear...but not good enough. That negative attitude was at predominant after the market crash in the early 70's and even Barron's ran the famous headline that "stocks are dead". Of course, that proved to be the best time to be buying equities cheap...I mean really cheap. The same thing occurred after the end of the market malaise in the 40's after the Depression. Depression era adults NEVER put money into the markets again which proved to not be such a good idea as the 50's and 60's were very enriching times.
Here is the point. The best opportunity to buy stocks for the current generation is coming, however, patience is the key. It will take one more really nasty bear market crash (maybe as early as 2012) to get valuations to where they should be and completely shatter market ideals of "get rich investing". Over the course of the next decade many of the past ideals that were created during the bubble years of the 80's and 90's will go down in annals of history as things you should never do with your savings. However, being a prudent investor and understanding that the financial markets are there to ensure that hard earned savings retain their purchasing power in the future is what will separate the "future rich" from the "future broke".