“This is the longest bull market in US stocks ever” they say.
Technically, they are right. This bull broke the all-time record formerly held by the 1990–2000 rally.
As I’m sure you remember, that one ended with a historic 80% crash in the Nasdaq that wiped out millions of overeager investors.
If you’re troubled by this, you’ll want to read the rest of this article carefully.
I’m going to tell you why “The Longest Bull Market Ever” narrative is nonsense.
We’ve Already Had a Couple of “Bear Markets”
There are dozens of ways to measure a bull market. The “official” definition states that a bull market continues until it is halted by a 20% decline.
The S&P 500 hasn’t declined 20% since bottoming in March 2009, roughly nine and a half years ago. But here’s something you may not know.
In 2011, around the time of the “debt ceiling” crisis, the S&P declined 19.4%. If it had dipped another 0.6%, the bull market would’ve ended there. And we wouldn’t be having this conversation.
Or did you know that from May 2015–February 2016 the median US stock fell 25%? Meanwhile, the Russell 2000 slipped 26%, and popular stocks Amazon and Apple lost 30% of their value.
But because the S&P 500 dipped only 14.2%, this didn’t interrupt the “official” bull market.
Do you see how useless the bull market label is?
“We’re now in the longest bull market ever” sounds important. And it is factually accurate. This makes it perfect to fill airtime for TV networks.
But it is totally irrelevant to making money in the markets.
There’s Always a Reason Not to Invest
You’ve surely heard this argument before.
It goes like this: “Because we’ve never seen a bull market this long before, we’re “due” for a scary bear market.”
Please don’t listen to this nonsense.
There is zero evidence to support it and taking it seriously will cost you money.
I’ve watched several people in my life sit out the whole bull market since 2009—thanks to scary sounding but meaningless stories just like this. They’ve missed out on dozens of profitable opportunities and triple-digit gains.
One of the great investing lessons I’ve learned is there’s always something to be scared of in the markets. It’s a false alarm 99.9% of the time.
Off the top of my head, this list includes:
Obama, Trump, the Zika virus, the Arab Spring, high oil prices, crashing oil prices, rising interest rates, negative interest rates, America’s credit downgrade, the flattening yield curve, Greece, trade wars, and most recently Turkey.
Yet here we are.
We Are Not in Bubble Territory Yet
A heck of a lot of disruptive events have happened since 1900. Two world wars and dozens of smaller ones. The Great Depression, the 2008 financial crisis, and 18 recessions.
Yet the S&P has risen 100x. US stocks have risen an average of 6.5% a year since 1900.
Do you want to bet with the 118-year trend, or against it?
Look, things go horribly wrong in markets from time to time. You must avoid getting caught up in dangerous bubbles like the Nasdaq in 1999 or Japanese stocks in 1989.
But the US stock market is nowhere near a bubble today.
Despite what you hear, stocks aren’t even all that expensive. The S&P trades for about 16.5x forward earnings, which is right in line with its 25-year average.
So be smart. Be cautious. Practice proper position sizing and risk management. But don’t obsess over when the next bear market will hit.
For most of the last 118 years, US stocks have gone up.
Meanwhile great disruptive businesses like Apple (AAPL), Microsoft (MSFT), Google (GOOG), and literally hundreds of others have handed investors 10x gains over and over and over again.
With profitable opportunities like this all around us today, it’s illogical to obsess about the tiny slivers in the above chart where stocks go down.