The Age of the Bull Market

Investment Analysis Clubs Saul’s Investing Discussions
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A lot of those people who were calling for a severe market correction a few weeks ago, were citing the age of the bull (almost six years old, about average for a bull) as one of the reasons that the market was going to fail.

An average length of six years means about half lasted less than six years and about half lasted more than six years. This particular bull could go ten years. Think where it started. It had to go several years to just get back where it was in 2007, before it started down. And this isn’t a blowout type of economy with a sharp rise and a short expansion life. This is the opposite. It’s a creep-along economy, growing a little at a time. There’s never been a time when everyone was sure it was going up. In fact, almost all the time, most of the pundits have been calling for a correction and a recession. That’s good news. As long as everyone is worried, the market will most likely keep going up.

JMHO

Saul

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Hi Saul,

I came across an article in the NY Times recently that says that a lot of people, having been burned by the two most recent recessions, are still leery of the stock market and are keeping a large percentage of their assets in cash:

http://www.nytimes.com/2014/06/07/your-money/fear-of-equitie…

I think that as long as people continue to think that the market is rigged or that it is a game only for the rich, then our bull will live. When that sideline money starts to come in and we start seeing ETrade commercials about teenagers buying helicopters (I still remember that one), then it will be time to reconsider!

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Hi Mr SideShow, great find. I’m going to post some things from the article:

IF a lot of your portfolio is still sitting in cash after a five-year bull market in equities, you’re not alone. Investors at all wealth levels around the world are holding substantial amounts of cash that have increased since 2012. What this means for investors and the markets that depend on their money is intriguing.

…retail investors globally were holding an average of 40 percent of their assets in cash, up from 31 percent two years ago.

… The United States was in the middle at 36 percent, but that was an increase of 10 percentage points in just two years.

Despite the run-up in equity markets, people have resisted rushing into stocks and have instead added to cash. They’ve done this regardless of their age or amount of wealth. The study found that millennials who are under 33 and have the longest time to invest their money were increasing their cash positions at the same rate as baby boomers, who will need to draw on their investments soon.

Why is this happening? Suzanne Duncan, global head of research at State Street’s Center for Applied Research, chalked it all up to fear — even though it has been more than five years since the Standard & Poor’s 500 stock-index hit its low.

This is incredible!!! If we were anywhere near a top, retail investors would be throwing their money at the market, not increasing their cash positions. The percent in cash has actually INCREASED in the past two years!

And it’s a question of wealth and presumably investing sophistication. The wealthier people have more in the market, growing, and the less wealthy have more in cash.

Investors with less than $250,000 have 50 percent of their wealth in cash, while those with $250,000 to $1 million have 38 percent. People with more than $1 million have 32 percent.

Saul

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Here is an interesting article by Bill Smead of Smead Capital Mgmt titled The Orphaned Bull Market with many interesting thoughts.

http://smeadcap.com/smead-strategies/smead-blog/entries/2014…

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Hi plat100,

I agree with his conclusion but his reasoning doesn’t make any sense to me.

Here’s the reasoning that makes no sense.

US institutional and individual investors don’t own enough in US large-cap equity to make their run for the exits meaningful. Their low historical level of participation proves it.

Makes no sense because someone owns it, every share, and if enough of them sell, of course it will go down.

Now, here’s the conclusion I agree with:

To us it means that for an extended time period, the lack of affection for US large cap equities will mute declines and reward patient long-duration owners of quality common stocks.

This makes sense because such a low level of investor’s total value is in stocks, that there’s a huge reservoir of can available to come into the market on declines.

JMO

Saul

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This is from an advertising email from Zacks but this excerpt is very worth reading.

Saul

The average bull market lasts 63 months. That means June 9th was when we officially hit the possible expiration date.

So that begs the question: Is this bull market over?

Absolutely NOT!

There are 2 main differences about this bull market that says the party will continue a while longer.

1) Economic expansion is slower this time around. You see, we are used to 3%+ GDP growth coming out of most recessions. This one took a while longer to get heated up with most of the time stuck between 1-2% GDP growth. This means we have not created excesses like most expansions from the past which is the harbinger for future recessions. In fact, signs point to growth on the rise later this year which equates to more legs for this bull market.

2) Still too much money on the sidelines or in underperforming bond funds. The reason being that the current generation of investors were horribly burned twice in recent memory (the bear markets of 2000 - 2002 and then again 2008 - 2009). This means they will be late to the party once again. As they climb on board, stocks will make another leap higher.

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This would mean that the bull market would continue for atleast another 12-18 months as the GDP has been growing between 1-2% rather than 3%. Essentially things should start loosing some steam towards the end of 2015.