Wall Street for Dummies Feb 14, 2025
The last two years in the stock market have been a lot like driving on a deserted desert road at 160 miles an hour, no cops or curves in sight. During this period, the S&P 500 rose almost 50 percent and is up 27 percent in the last 11 months. The market is moving at twice its historical average of 10.6 percent. I am not now, nor will I ever be, in the prediction business, but I think inquiring minds could agree that somewhere out there, at the end of the straightway…there is a curve.
So, what should investors do when we come to the inevitable curve…when the market goes from plus 25 percent to minus 25 percent? The prevailing Wall Street mavins answer is “Take the hit and wait for the market to come back.” That approach may have worked 40 years ago when I was a wet behind the ears young broker, but today there are over 70 million investors whose average age is 63.7, who have $9 trillion invested in retirement accounts. They don’t have time to wait and recover from a sizable hit.
One possible alternative to the “wait and see” approach is to move some (or all) of your assets from the stock market to the bond market. The convention wisdom is that bonds are safe, which became problematic when the Fed started raising interest rates three and a half years ago. At this approach, the Wall Street mavins warn, “You don't know when the market will turn south, so, you don't know when to get out, and if you did, you wouldn’t know when to get back in.”
But you don’t have to be 100 percent right to benefit from such as approach. If you do nothing, and the market declines by 25 percent, you’ll have to recover 33 percent to get back to where you started. If you miss read the market and move some or all of your assets to the bond market after a 10 percent decline, it only takes an 11 percent gain to get you back to whole.
I think it is reasonable to assume that at the end of every straight away there's a curve. There is however, one notable and ironic exception. If you drive in a westerly direction on Wall Street, you will not come to a curve --- you will come to a cemetery. I leave it up to you to draw your own conclusion.
Added an update on the Magnificent 7 to my podcast, “Wall Street for Dummies.”
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