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Has the Stock Market Had It?My Answer is "BULL!" And I Want to Tell You Why . . .By Louis Rukeyser
For nearly three decades, I've been in the business of helping "other people get rich -- by bringing them the best possible advice each week on the widest imaginable range of investments. As a result of this unique experience, I've learned a couple of lessons that I'd like to pass on to you now: (1) There's one investment that has truly been the big winner of our modern era--and is likely to continue to earn that honor in the future. (2) Too many people have been scared away from participating in its remarkable, and continuing, success. I'm talking about common stocks. And that often surprises people because they hear so much about the risks in stock investing--most often from someone who is trying to sell them something else, something that usually turns out to be far more risky. (In 1980, a national magazine put me on its cover with the prediction, "The 1980s will be the decade of common stock"--at a time when scores of wise guys were urging the unwary to buy gold instead. 'Twas ever thus!) Don't misunderstand me. As newcomers to the market were vividly reminded recently, stocks don't go straight up. Nor does the American economy. Recessions and dips will continue to arrive in the years ahead--like sunspots, floods and earthquakes. But those financial events (which are as inevitable, and as normal, as breathing) are invariably just temporary interruptions in the long-term trend, which is up, up, up. History tells us unmistakably that great fortunes are built by those few wise folks who calmly and shrewdly seize the long-term opportunities while other scared investors are running for the hills. And here's a dramatic lesson on how important it is to make that trend your friend: Let's suppose you've been the single unluckiest investor in the entire world. (We all feel that way sometimes, don't we?) Starting back in 1963, you put $2,000 once a year in stocks that comprise the Standard & Poor's 500 index--but your timing was so terrible that, alas, you chose the worst day of the year every time! Incredibly, you invested at the exact top of the market every year--and kept it up for 10 years. (After that, you let it ride.) As of May 1, 1998, your total of $20,000 would have grown to $719,081 according to a recent study. But your brother-in-law Darth started investing $2,000 a year in 1973, right after you quit. To everyone's astonishment, especially yours, Darth turned out to be the world's luckiest investor. Every year, he picked the absolute bottom of the market to plunk down his $2,000. And to stack the odds in Darth's favor even more, let's say he kept up this stupendous performance for 20 years, twice as long as you. As of that same May 1, 1998 date, Darth's 40 grand would have grown to only $696,847 a bit shy of your total. Imagine! He put in twice the money. and his annual return was far higher. Yet you licked him fair and square. Moral: Forget market timing! Timing and luck are nice, but you can make more money just getting started now. Why the Best Time to Start Getting Rich Is Immediately My basic argument is really very simple: over the years, the stock market goes up about two out of three days. With such friendly odds, you risk more by being out of the market than being in it. In fact, every day you wait could cost you money. Please don't wait for the "right time" to get in on a market "dip." It isn't particularly important what level the market is at when you start investing. Even an investor with the most pathetic luck imaginable does just fine if he keeps at it. Here's what I mean. Say you invested in the S&P 500 at the start of every year since 1965. As of mid-1995, you'd have racked up an annual return of 11%. But what if you were ill-fated enough to invest at the peak of the market each year? It would hardly have mattered. Your annualized return would have "plunged" all the way down to 10.6%. Conversely, if you had had the good fortune to invest at the low point each year, your return would have risen only 0.7%, to 11.7%. In other words, in the long run it doesn't matter much whether your timing is great or lousy. What matters is that you stay invested. It's time--not timing--that is going to make you rich. Worrywarts so scared of a market drop that they do nothing are making a big mistake. Go for it. And go for it now. Don't waste time worrying about how the "market" is behaving. Over the long haul, the market has made winners of everyone who has stuck it out long enough. As my good friend Peter Lynch--one of the most successful stock pickers of all time--has so astutely pointed out, far more money has been lost by investors trying to protect themselves from market downturns than has been lost in downturns themselves. Yet many investors still put off buying good stocks, sitting on their cash and hoping to buy stocks cheaper after a market correction. That's a loser's game. They may call themselves long-term investors, but they're not. They've turned into market timers. And that's no way to get rich. Take a look at the Forbes list of the world's 400 richest people. It's peppered with long-term investors--not market timers. How $10,000 Ballooned into $272 million The winner's game is buying and holding good businesses with strong enduring qualities. That's Warren Buffett's approach and it's done pretty well by him. He's #2 on the Forbes list, and he got there by buying stocks in solid companies and holding them--not by wasting time trading in and out to make a point here and there. Anyone with the good judgment to invest $10,000 in Buffett's partnership at its inception in 1956 (and to transfer into Buffett's Berkshire Hathaway at the partnership's termination) would today be sitting on an astonishing $272 million--after all fees and expenses. What's more, the lucky investor would have incurred only about $54,000 in income taxes during the entire 42-year period! No PR man alive could dream up a better testimonial for buying and holding shares of quality American businesses than that. It's Your Choice--Why Not Choose Wealth? I can't believe how many people pass up the chance to partake in the greatest (and most convenient!) wealth-building device ever designed--participatory capitalism. All it takes is a phone call to a stock broker or mutual fund and you're in. If you believe, as I do, that American business has a promising future and that corporations will continue to create wealth, there's absolutely no reason not to share in the profits. Unfortunately, many people aren't too smart about attaining wealth. They want the good life, naturally enough, but they concentrate on owning things-- like new cars and bigger houses--instead of stock in companies that make the things they want. So instead of owning wealth producing assets that will make them richer and richer, eventually allowing them to buy whatever they want, they blow their seed capital on wasting assets that shrink in value. Mr. Louis Rukeyser airs on a weekly program on PBS called Louis Rukeyser's Wall Street. He also publishes a newsletter that gives investment advice. The newsletter can be reached at: Louis Rukeyser's Wall Street, P. O. Box 9625, McLean, VA 22102. |
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