The key to making a fortune in stocks (and avoiding getting obliterated) is having a basic idea of when stocks might have a long stretch of gains… and when they might do nothing.
This isn’t easy to do. But when you look at it over history, a simple pattern does emerge…
Each generation, the pattern switches.
One generation gets obliterated by the stock market, knocking everyone out of stocks. Then the next generation lives through a soaring stock market.
It’s not clockwork… but it seems there’s more at work than just chance. Take a look:
| 100 Years of Investment Cycle | |||
| Generation | Commodities | Stocks | Years |
| 1914-1930 | -14% | +159% | 16 |
| 1930-1947 | +244% | -30% | 17 |
| 1947-1965 | -18% | +503% | 18 |
| 1965-1981 | +123% | +35%* | 16 |
| 1981-1999 | -9% | +1,054% | 18 |
| 1999-2016 | +?% | -?% | 17 |
| * Number would be negative if adjusted for inflation | |||
If you had lived through the Great Depression – if you had lived through an entire generation where stocks lost money (17 years from 1930-1947) – would you ever consider buying stocks again?
Probably not. Yet that’s when you should have bought… Stocks rose by more than 500% in the next generation, from 1947 to 1965.
Folks who invested heavily throughout the 1970s learned you could “never” make money in stocks. You needed real assets, like real estate and gold. Boy, were they wrong in the 1980s and 1990s. Gold fell in half from its 1980 peak to 1999.
If the last investment generation ended around 1999, and if the pattern holds, then we could see stocks do poorly for something like 17 years… or until roughly 2016. That’s pretty close to what Shiller is saying.
The popular wisdom in 1999 was that you always want to be invested in stocks. Nobody wanted gold. But since the end of 1999, stocks (as measured by the S&P 500 index) are down, as I’m sure you’re well aware. Meanwhile, commodities (as measured by the CRB Index) are up over 100%.
The last generation of stock investors is still holding some love for stocks. And they’re still a bit afraid to commit to commodities like gold. But they will. History suggests they’ll have given up on stocks and be fully loaded in commodities… by 2016.
Looking at the last time we were in a similar cycle, I have two important points to share with you…
1) The March 2009 bottom may be the ultimate bottom in stocks, not 2016. In the last great bear market (’65-’81), the ultimate bottom was in 1974, not ’81. Investors spent the next few years giving up on stocks and looking to “the action” in commodities.
2) Commodity prices could go “parabolic” in the coming years. They did in the late 1970s, at the very end of their bull market. It’s what happens at the end of great bull markets. It’s just like stocks in the late 1990s – they “went parabolic” at the end of their bull market.
So there is some good news…
Commodities could go parabolic from here. And stocks may have already bottomed. So even though it could be years (until roughly 2016) before another rip-roaring bull market in stocks arrives, we may have seen the lows for this generation.
Or none of this could be true, of course… But it has worked roughly this way for the last 100 years.
Source: Dr. Steve Sjuggerud
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