The Death of Equities, Part II

 

We here at Running of the Bulls are on the look-out for anecdotal turning points in the market.  These are events or proclamations which, in hindsight, represent overwhelming conviction at the turning point, that all those who at the top are going to buy have done so, and all those who are going to sell at the bottom have done so.  Such examples are David Lereah's book on the boom in housing just before housing topped out, James Glassman's book, Dow 36,000, published at the top of the market in 2000, and most famously, BusinessWeek's cover proclaiming The Death of Equities in 1979, just before one the greatest bull markets of all time was about to start.

More recently, we noted that the bottom in the dollar was near when stores in New York began accepting euros and Supermodels insisted on being paid in euros.  I contend that uber-bank bear, Meredith Whitney, starting her own investment banking firm will be another anecdotal turning point for the bank stocks in the not-too-distant future.

Now, we have bond king, Bill Gross, ininadvertently providing us with yet another anecdotal turning point.

In Gross's view, the current economic contraction is killing the animal spirits that drive risk taking and that's contributing to the death of equity capitalism as we've come to know it.

As Gross told me, "things will never be the same. Risk taking has been destroyed and any animal spirits must come from Washington. Global growth rates -- low, low, low -- asset classes will be readjusted for that outlook. That is -- stocks will be more of a subordinated income vehicle as opposed to a 'stocks for the long run' growth vehicle."

Essentially, Gross is making the case for the Death of Equities.

I very much want to emphasize this point.

Buy and hold, stocks for the long-run, is more relevant now than at any point in the last 30 years!

I cannot stress this enough.

Right now, putting away stocks for next decade or two will be a highly very profitable endeavor, even if stocks fall substantially from here!  Those making the proclamation that buy and hold is dead will look very foolish 10 to 20 years from now.

I want to stress - I absolutely do not think that buy and hold is a good strategy all the time.  It is, in fact, horrible advice when stocks are expensive!  When stocks are expensive, sell all your stocks and buy something that is cheap, or put it in cash.

But when stocks are cheap, load up the truck, and wait.

And now, stocks are cheap.  Very cheap.

Comments

[Jason]

my indicator of when to buy in to the market is when you stop being so bullish and believing stocks are cheap...once you have surrendered hope, I know we will have true capitulation and it's time to load up... I cashed out of the market over 2 years ago...

[Gareth]

..."BusinessWeek's cover proclaiming The Death of Equities in 1979, just before one the greatest bull markets of all time was about to start."

I would argue that the bull market didn't really start until August '82, quite a while after that was published. Im sure history also forgets all the tidbits that do not conform well too wallstreet lore like that magazine does. Like maybe the Barron's Cover at the '02 bottom that proclaimed "time to buy stocks". I would be very careful about any valuation based analysis of this market. I agree that stocks are cheap but everything still comes down to timing. Valuation is a poor timing tool historically.

[Toro]

Gareth

I would agree. There are all sorts of anecdotal turning points near the extremes which are obvious only in hindsight.

T.

[psychodave]

"I would argue that the bull market didn't really start until August '82"
Gareth | March 04, 2009 at 12:53 AM

Gareth, in terms of the stock market as a whole, I agree with you.

However, there were some high quality individual stocks (e.g. HPQ, then known as HWP) that, when purchased in November 1979, never looked back from that point on.

Toro's been correct in his pounding this point home for weeks (or is it months?). So correct I opened up an IRA and forced the in-laws to start monthly contributions.

I hope, for the in-laws' sake, the market stays low for the next 5 to 10 years because I agree with Toro's "10 to 20 years from now" prognostication.

[alan smithee (nee kerry)]

i think that now is the time to be buying the discarded cigars, to quote Buffet (who was in turn discussing Graham.) He was against going after the cigars, btw.

The thing is, the BKs have not (really) even started yet. (I'm still going for the cigars)