To: Craig A who wrote (23600 ) 8/8/1999 10:27:00 PM From: pater tenebrarum Read Replies (1) | Respond to
allow me to point out that these ten commandments obviously work excellently in an extended bull market, but cease to work in extended bear markets. as the japanese example shows, the more extended a bull market becomes, the more protracted is the bear market that follows it. interestingly the biggest stock market manias have always occurred during times when the underlying economic fundamentals were supportive of a bull market in the form of stable prices, big gains in productivity, the advent of new technologies, and above all easy monetary conditions. this was as true of the 1920's mania as it was true of the japanese mania. needless to say, it's also true of the current one in the stock markets of the western world. unfortunately no-one knows for sure when it will end, and the people calling for caution have been looking like fools in recent years. however, all models that look at the stock market in terms of earnings and interest rates show that this is the most overvalued market in history, bar none. this to me makes 'investing for the long term' a shaky proposition at best. there is an undercurrent of arrogance that has taken hold among investors, a feeling of invincibility, as the market racks up incredible gains year after year. no-one seems to consider the possibility that the party may end at some point. nevertheless, that's exactly what is going to happen. a simple mechanical trading strategy can ensure a long term investors' survival: sell when the SPX crosses it's 200-dma to the downside, and buy back in when it recrosses the 200-dma to the upside. i have read research pertaining to this strategy which shows it's performance starting in the early 70's ( before bear markets were outlawed)until today and it is far superior to the widely touted 'buy and hold'.
