Tue 11 Nov 2008
A lot of people are claiming the bottom is in, specifically because the stock market bottoms 6 months before the end of a recession. Since the recession is likely going to be over in 6 months (by whatever logic such prognosticators believe), now is the time to buy. I know I’ve heard this argument at least a dozen times.
John Hussman has a different opinion:
All of us know that the stock market bottoms 6 months before the end of a recession.
The problem is that this ?fact? isn’t really true. The actual facts are that substantial losses typically occur between the market’s peak and the point that a recession is universally recognized, and major gains reliably begin only about three months prior to the end of a recession, and continue into the recovery.
Read more here. Another good quote:
[Don’t think I believe] stocks have ?hit bottom? or that a new ?bull market? is at hand. That sort of thinking isn’t really helpful to investors, who should always be grounded in observable evidence (rather than trying to infer things like bottoms and turning points, which can only be identified in hindsight). Frankly, the idea of identifying those things in real time is wishful thinking.
… Staying with the present moment ? with what can be observed ? doesn’t mean one ignores the past or fails to consider the future.
… Presently, observable evidence suggests that stocks are no longer strenuously overvalued, as they have been for over a decade (with the consequence that stocks have lagged Treasury bills over that period). Observable evidence also suggests that the washout last month was spectacular enough (and the breadth reversal substantial enough) to allow for ? not ensure ? a sustained advance.
I find Hussman provides a tempered stance, and a good focus on the long-term investing landscape. While I don’t always agree with his analysis, I certainly find it thought provoking.