Jeremy Siegel's "soothing" wall of worry

[Nords]

As we dread anticipate September, the gloomiest investment month of the year, it's always comforting to read an article by a veteran investor.

* * *"I believe that odds are about five to one against the U.S. falling into a recession over the next year. There is no doubt plenty to worry about, and pessimists point to two major risks in the economy: soaring oil prices and a severe housing slowdown.
* * *History shows that stocks have often climbed this 'wall of worry', amply rewarding investors who stay with equities. Uncertainty is one of the reasons why the stock market has over the long run been such a good investment and why stock returns have sported such a hefty premium return over fixed income assets."

[Spanky]

I agree that equity will provide the best return in the long term. However, I am putting more than half of my assets into money market.

[TromboneAl]

I agree with him in general, but one sentence towards the end says:

"Professionals call the ever present risk facing investors the “Wall of Worry.” "

He's either not expressing himself well, or he doesn't understand how that term is normally used.

He's expressing it as something that is always there. *But the way I see it used is in a contrarian sense: When people are especially worried about the short-term future of the stock market, the market often goes up (climbing the wall of worry). *When everybody thinks things are great (no wall of worry), the market tends to go down. *IOW, the wall of worry is not ever-present.

[brewer12345]

I think that over the long term (many years) he is right. In the short term, a problem in the housing market will feed into the mortgage market, the largest, most liquid financial instrument market in the world. If there is a problem there, the stock market will be in deep do-do in short order. But unless this triggers a recession (unlikely), an October 1987 type instance will be a buying opportunity, not the start of a long, bad time.

How likely is a serious problem in the housing market? I dunno. But I would not be betting that things will be A-OK there. If nothing else, the worst of the bubble markets will be coming back to earth, although if it takes a few years it won't be as painful as it otherwise might be.

[danm]

Good comments everybody - they mirror mine. Dear old Bob Brinker is saying the same thing ... 'don't worry, be happy! The market will climb this wall of worry and go on to ever greater heights beyond ..."

No, I'm sorry. They (the ultra-Bulls) were all saying that back in 2000 too. If your on a train and see a herd of cows on the tracks ahead - sure they might get out of the way in time, but ...

[d]

Quote:

I am putting more than half of my assets into money market

d.m.t.* when things look gloomy (or rosy) it's comforting (worrying) to remember that the market cannot be predicted with any degree of reliability.

[mathjak107]

as the father of modern economics maynard keynes said" THE MARKETS CAN REMAIN IRRATIONAL ALOT LONGER THAN YOU CAN REMAIN SOLVENT"

[d]

Quote:

" THE MARKETS CAN REMAIN IRRATIONAL ALOT LONGER THAN YOU CAN REMAIN SOLVENT"

are the markets currently irrational?* if so, how do you know?* if not, how do you know?

[danm]

OK, since we're pulling out well worn sayings, how about Stein's Law ...

Things that cannot go on forever, don't.

Trees don't grow to the sky forever, and neither do houses, stocks, bonds, whatever ...

And with regards to the idea that markets can't be predicted with any degree of reliability, hogwash. Everybody thought I was crazy to sell my house last summer. I didn't know how after living through the dot.com bubble, people could believe that housing was any different.

[hellbender]

Quote:

Originally Posted by Nords As we dread anticipate September, the gloomiest investment month of the year, it's always comforting to read an article by a veteran investor. * * *"I believe that odds are about five to one against the U.S. falling into a recession over the next year. . . . . ."

About the same odds you get in Russian Roulette if you don't spin the cylinder again after surviving the first trigger pull.

[d]

Quote:

About the same odds you get in Russian Roulette if you don't spin the cylinder again after surviving the first trigger pull.

... actually the same odds as the first pull ... on the second pull the odds are 4 to 1

[haha]

Quote:

Originally Posted by Nords As we dread anticipate September, the gloomiest investment month of the year, it's always comforting to read an article by a veteran investor. * * "I believe that odds are about five to one against the U.S. falling into a recession over the next year. There is no doubt plenty to worry about, and pessimists point to two major risks in the economy: soaring oil prices and a severe housing slowdown. * * History shows that stocks have often climbed this 'wall of worry', amply rewarding investors who stay with equities. Uncertainty is one of the reasons why the stock market has over the long run been such a good investment and why stock returns have sported such a hefty premium return over fixed income assets."

All these guys have become brands. Siegel is the Don't Worry, Be Happy Brand; Prof. Shiller is the Don't Be Too Sure Brand.

As in any market situation, you buy what you think is most appropriate for your situation, or possibly one thing one day, and one thing another.

Laying aside any questions of valuation, I still find that stocks for the long run would only be relevant to a very young person, who intended to capitalize on the advantage provided by his youth by staying in the labor market for a good long time.

How comforting should it be to a 40 year old retiree to hear that stocks always produce real returns in any 20 year period? Think he is going to calm as he enters the 17th year and he is still down? How about 18th?

And Siegel misunderstands the meaning of history when he says :”History shows that …” The only thing that history shows is what happened in the period under review.

Ha

[danm]

Well said. I'm rather cautious, when I was young and the ideal candidate for long term stock investing, I did. Didn't make much money at it, if anything. My 401k for instance has, I believe, just broke water after 15 years of investing. Would have been better to keep it in a MM. The problem with the 'stocks for the long run' crowd is everybody has a horizon, which obviously gets shorter as time goes on.

I'll retire early, really early, but I made my money by getting lucky in this last RE bubble, having a high paying job, and by saving my ass off.

Quote:

Originally Posted by HaHa All these guys have become brands. Siegel is the Don't Worry, Be Happy Brand; Prof. Shiller is the Don't Be Too Sure Brand. As in any market situation, you buy what you think is most appropriate for your situation, or possibly one thing one day, and one thing another. Laying aside any questions of valuation, I still find that stocks for the long run would only be relevant to a very young person, who intended to capitalize on the advantage provided by his youth by staying in the labor market for a good long time. How comforting should it be to a 40 year old retiree to hear that stocks always produce real returns in any 20 year period? Think he is going to calm as he enters the 17th year and he is still down? How about 18th? And Siegel misunderstands the meaning of history when he says :”History shows that …” The only thing that history shows is what happened in the period under review. Ha

[d]

Quote:

The problem with the 'stocks for the long run' crowd is everybody has a horizon, which obviously gets shorter as time goes on.

as lord john maynard keynes said: in the long run we're all dead

[saluki9]

This thread is amazing! In only one page we have managed to use just about every market related cliche

I'm really impressed

[Donzo]

What goes up...will come down. Now we got em all

[unclemick]

Ah hem!

You guys forgot Geraldine - "Dividends Don't Lie".

And with a name like Weiss - I suspect she may not be Norwegian.

Heh heh heh heh heh - get the dividends auto deposited to checking and then you can worry your heart out.

[WRBT]

Quote:

Everybody thought I was crazy to sell my house last summer

Seriously?

Last summer we sold to downsize and the prevailing opinion from coworkers, neighbors, friends, family, message boarders etc. was that we were getting out at the right time because the runup had peaked.

Sure didn't encounter anyone thinking it a crazy move.