Charting & Technical
Analysis
             The Decade That Tanked Your Portfolio!

The past decade has given many investors a bad case of the ‘Hibby Jibbies.’ Do you know what that is? That’s the sick feeling in the pit of the stomach, the weak knees, and the uncontrollable urge to cry while perusing the bottom line on the investment account statement. Many are ready to just give up on investing entirely. They look at all the equity market's red ink over the past 10 years and think that investing has drastically changed, and some are convinced that the next decade will look a lot like the last. They may be right.

What happened?
The claim that investing returns have been non-existent over the past 10 years is hardly exaggerated. Between the start of 2000 and the beginning of 2010, the S&P 500 index dropped 23%. Many individual stocks performed even worse. To name a few:

·Corning (GLW)  (55.1%) return
·Cisco Systems (CSCO) (55.3%) return
·Merck (MRK) (45.6%) return
·Home Depot (HD) (57.9%) return
·Intel (INTC) (49.8%) return

And the list could go on, but I won’t bore with the details. You want to know ‘WHY’ the market has not produced average returns of 10% per year like it has over the past 70 years or so and what you can expect in the near future, right?

There are 2 reasons that are quite possibly the crux of the issue.

1.Secular Bear Market.

For more than 100 years the stock market has experienced Bull and Bear markets that always take turns controlling whether the market is advancing or declining. You hear about those all the time.  When the economy expands and the market is advancing the news always acts as if the sky is the limit and stock prices are going to reach the infinite, wherever that is, and you are happy as a lark with the money you are making on your investments. But then on the average of every 3.5 years the economy contracts, a Bear Market ensues, and hauls your portfolio with it to the rock bottom - bargain basement prices. But that’s only part of the story as to why nothing has progressed in this decade.
The bigger picture is much more telling. During the past 100 years the ‘Secular Bull and Secular Bear’ markets have dominated the bigger picture while the those individual bull and bear markets take their respective turns during shorter time frames. The Bull and Bear markets you hear about on the news last only a few years. But the Secular Bull and Bear Markets are different, they last anywhere from 15 to 20 years. Just like their smaller counter-parts, one always follows the other, when a Secular Bull market ends, a new Secular Bear Market begins.
The following chart describes this explicitly. A picture truly is worth a thousand words.
 
Copyright McAllen investments  2012 All Rights Reserved
That’s right, starting in 1900, for more than a 110 years the market has had the short-term Bull and Bear Markets, but the bigger picture shows the Secular long term markets, the Grand Daddy that is really in charge. These long-term Bulls and Bears wreak havoc on the investor that was planning on seeing some net gains in the retirement account.
If you happened to be smart enough, or lucky enough to invest early on in one of the Secular Bull markets, then you did really well. But if you jumped in on the tail-end of a Bull, you could sit for many years waiting to make all that money you expected to retire on. Probably left you feeling more like the Clown than the Bull Rider, huh?

2.Baby Boomers

Another possible reason for abysmal returns is the Baby Boomers. That’s right, blame the ‘Boomers’. The Baby Boomer generation seems to be either credited or blamed for many things. So blaming them for your paltry investment returns should be no different, right?
Look at it from a logical perspective. At what point did the Baby Boomers start entering their most productive years being gainfully employed? You know, when they started making money hand over fist, throwing it at the stock market, and investing for their retirement. Since many were born in the late 1940s and early 1950s, they entered their most productive years around the age of 30 or so. By doing some simple math we can conclude that the oldest of the Boomers started earning more money and investing in the early 1980s.
Now, look again at the above chart to see when the last Secular Bull market started and the overall market advanced consistently for 18 years. Yes, 1982 to be exact.

What does this tell us?
As the Baby Boomer generation enters retirement, they will no longer be adding funds to their retirement. Instead, they will be a need to withdraw those funds that they invested in order to maintain their standard of living. Those invested funds will be withdrawn from retirement accounts, 401k, Mutual Funds, and savings. There are not as many new investors to take their place throwing fistfuls of money into retirement accounts or the stock market, so as you can imagine, as funds are either no longer added, or as funds are withdrawn, there are less funds to purchase stocks and investments. Less purchases equates to less advance in the overall market and in mutual fund values as well.

So what can you expect?
Your expectation must change. Therefore, investing in a Mutual Fund and expecting to realize net gains comparable to the gains realized in the 1980s and 1990s is most likely not very realistic. In 2000 when the Bear Market began and the overall market started its decline, Warren Buffett said:

                         “The next 17 years will certainly be different than the past 17”

One can only assume that Buffett’s comment was based on the bigger picture as it relates to the market and investing as I have described in this article. Regardless, the past decade has proven, he was right.
This clearly shows the individual investor must have an investing plan that works. Not only when the market is advancing, but also in declining markets. Sticking to the age-old mantra, ‘Buy-and-Hold’ can certainly mean financial suicide. As you can see from the above chart, the buy-and-hold investing theory only works at times, with certain investments, and there are long periods of time that it will not work.
Do yourself and your retirement plan a favor; learn to make your own investment decisions. ‘Charting and Technical Analysis and Trading The Trends’ describe in detail what is necessary for your investment portfolio to avoid being decimated by the continuing market gyrations, market declines, the next Bear Market, and every Bear Market that comes around about every three years like clockwork.

Fred McAllen
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