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How to Avoid Nine Years of Stock Market Purgatory

By Jeff Clark
Thursday, April 17, 2008

In the words of my father-in-law, "The stock market stinks."
 
Benny was lamenting over the performance of his S&P 500 index mutual fund. He bought the fund back in 1999. And he sold it just a few weeks ago.
 
After taking into account all the reinvested dividends, Benny figures his rate of return worked out to just about 2% per year. "I'd have been better off in a CD," he said.
 
And he's right. Take a look at this nine-year chart of the S&P 500... 
 
 
The S&P 500 was at 1,350 nine years ago, and it's at 1,350 today. Oh sure, stocks have been a bit higher and a bit lower. But for the most part, investors have suffered through nine years of stock market purgatory... and we're probably in for another nine years of the same thing.
 
You see, long-term stock market trends often last anywhere from 15 to 20 years. For example, stocks were in a strong bull market from 1946 to 1966. Then the bear took over, and stocks didn't make any ground from 1966 to 1982.
 
In 1982, we entered the greatest bull market of all time, and stocks rallied until the year 2000. Since then, however, the market has been trending flat to down. And if history is any sort of a guide, then we'll likely have six to nine more years of the same action.
 
The problem is that most investors, like my father-in-law, are still trying to use bull-market investment strategies to make money in a bear market. Back in the 1980s and 1990s, you could follow the rest of Wall Street's lemmings into an S&P 500 index fund and expect a reasonable rate of return.
 
That's not true anymore. If you want to make money in sideways or down-trending markets, then you need to be more involved with your investments. You need to do more research. You need to be willing to move in and out of stocks more often. And you need to incorporate strategies that work well in a sideways market.
 
One such strategy is selling covered calls, which I've written about extensively in previous issues of Growth Stock Wire (read my most recent essay here). Another technique involves setting aside a small amount of money for speculating – ideally no more than 10% of your net investment capital. It's surprising how much a few reasonable speculative trades can juice up the returns of a conservatively invested portfolio.
 
I'll share with you my basic philosophy for speculating in next Tuesday's Growth Stock Wire.
 
In the meantime, think about your own investment performance over the past several years. If you've been stuck in your own private stock market purgatory, then maybe it's time to shake things up a bit.
 
It would be pretty sad to look back nine years from now and say, "The stock market stinks."
 
Best regards and good trading,
 
Jeff Clark




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Market Watch
Symbol Price
Change
52-Wk
S&P 500 1224.71 +0.3% +11.4%
Oil 38.31 +1.4% -0.6%
Gold 138.07 +2.1% +16.3%
Silver 28.60 +2.4% +53.6%
US-Dollar 80.19 -0.6% +7.2%
Euro 1.34 +1.4% -11.0%
Volatility 18.01 -7.1% -19.8%
Gold Stocks 581.56 +3.0% +17.0%
10-Year Yield 3.02 +0.7% -10.7%

World ETFs
Symbol Price
Change
52-Wk
USA 122.89 +0.3% +11.3%
Canada 30.50 +0.2% +16.2%
Russia 21.94 +1.4% +18.1%
India 37.85 +0.3% +22.3%
Israel 16.69 +1.3% +10.8%
Japan 10.64 +0.6% +6.5%
Singapore 13.73 -1.1% +18.8%
Taiwan 14.78 +0.4% +19.2%
S. Korea 57.31 +1.3% +23.4%
S. Africa 71.87 +1.4% +28.2%
China 44.42 -1.4% -0.6%
Lat.America 53.17 +0.7% +8.4%

Sector ETFs
Symbol Price
Change
52-Wk
Oil Service 137.59 +1.0% +18.9%
Big Pharma 64.14 +0.0% -3.2%
Internet 72.07 -0.1% +23.4%
Semis 16.22 +1.2% +29.4%
Utilities 31.28 +0.2% +1.5%
Defense 18.52 +0.1% +10.6%
Nanotech 10.03 +0.4% +1.6%
Alt. Energy 10.08 +1.3% -3.3%
Water 18.49 +1.0% +14.5%
Insurance 16.14 +0.4% +21.1%
Biotech 20.54 -0.2% +28.1%
Retail 19.70 +0.3% +30.2%
Software 24.79 +0.8% +25.9%
Big Tech 53.87 +0.3% +22.7%
Construction 13.10 +0.9% +15.7%
Media 13.64 +0.5% +26.0%
Consumer Svcs 67.39 +0.2% +24.5%
Financials 55.04 +0.3% +7.4%
Health Care 64.30 +0.1% +2.0%
Industrials 63.54 +0.5% +21.0%
Basic Mat 74.35 +1.1% +25.3%
Real Estate 55.32 +0.1% +25.0%
Transportation 91.77 +0.7% +26.9%
Telecom 22.59 +0.5% +17.8%