Best of the Week
Most Popular
1.The Brexit War! EU Fearing Collapse Set to Stoke Scottish Independence Proxy War - Nadeem_Walayat
2.London Terror Attack Red Herring, Real Issue is Age of Reason vs Religion - Nadeem_Walayat
3.The BrExit War, Game Theory Strategy for What UK Should Do to Win - Nadeem_Walayat
4.Goldman Sachs Backing A Copper Boom In 2017 - OilPrice_Com
5.Trump to Fire 50 US Cruise Missiles To Erase Syrian Chemical Attack Air Base, China Next? - Nadeem_Walayat
6.US Stock Market Consolidation Time - Rambus_Chartology
7.Stock Market Investors Stupid is as Stupid Goes - James_Quinn
8.Gold in Fed Interest Rate Hike Cycles- Zeal_LLC
9.The BrExit War - Britain Intelligence Super Power Covert War With the EU - Nadeem_Walayat
10.Marc Faber: Euro to Strengthen, Dollar to Weaken, Gold and Emerging Markets to Outperform - MoneyMetals
Last 7 days
EURUSD at a Critical Point in Wave Structure - 23rd Apr 17
Stock Market Grand Super Cycle Overview While SPX Correction Continues - 23rd Apr 17
Robert Prechter Talks About Elliott Waves and His New Book - 23rd Apr 17
Le Pen, Melenchon French Election Stock, Bond and Euro Markets Crash - 22nd Apr 17
Why You Are Not An Investor - 22nd Apr 17
Gold Price Upleg Momentum Building - 22nd Apr 17
Why Now Gold and Silver Precious Metals? - 22nd Apr 17
4 Maps That Signal Central Asia Is at Risk of War - 22nd Apr 17
5 Key Steps For A Comfortable Retirement From Former Wall Street Trader - 22nd Apr 17
Can Marine Le Pen Win? French Presidential Election Forecast 2017 - 21st Apr 17
Why Stock Market Investors May Soon Be In For A Rude Awakening - 21st Apr 17
Median US Household’s Wealth Has Declined by 40% Since 2007 - 21st Apr 17
Silver, Platinum and Palladium as Investments – Research Shows Diversification Benefit - 21st Apr 17
U.S. Stock Market and Gold, Post Tomahawks and MOAB - 21st Apr 17
An In Depth Look at the Precious Metals Complex - 20th Apr 17
The Real Story of China’s Strong First-Quarter Growth - 20th Apr 17
3 Types Of Life-Changing Crisis That Make You Wish You Had Some Gold - 20th Apr 17
The Truth is a Dangerous Thing - 20th Apr 17
2 Choke Points That Threaten Oil Trade Between Persian Gulf And East Asia - 20th Apr 17
Gold’s Next Downside Target Is Around $700… Even if It Breaks Up First - 19th Apr 17
SPX May be Completing its Corrective Pattern - 19th Apr 17
Silver Production Has “Huge Decline” In 2nd Largest Producer Peru - 19th Apr 17
Soothing East Asia's Nerves as Trump's Administration Reaffirms US Power in Asia-Pacific - 19th Apr 17
The Brexit War - Article 50 Triggered, General Election 2017 Called - Let the Games Begin! - 19th Apr 17
Plungers Big Trade - The Oil Short - 18th Apr 17
The Smart Money Is Piling Into Regenerative Medicine - 18th Apr 17
If You Invest In Stocks Now, Expect No More Than 3% Returns In The Next 20 Years - 18th Apr 17
Maps That Explain Wars In The Middle East And North Africa - 18th Apr 17
Theresa May Calls Snap BrExit UK General Election Capitalising on Crippled Labour Party - 18th Apr 17
Is US Economy at the Cusp of the Next Recession? or Maybe Worse? - 18th Apr 17
US Housing Market Mortgage Delinquency Rates Increase & 3X ETFs - 17th Apr 17
Trump US North Korea First Strike Smoke and Mirrors, China is the Real War Target! - 17th Apr 17
Now Is The Time To Invest In Canada’s Marijuana Boom - 17th Apr 17
History of the Post WWII Crude Oil Price From a Technical Perspective - 17th Apr 17
Stock Market Bounce Coming? - 17th Apr 17

Market Oracle FREE Newsletter

50+ Global Markets. Today's Top Opportunities. (April 12-20)

The Biggest Stock Market Investing That You Actually Believe

InvestorEducation / Learning to Invest Feb 25, 2013 - 06:35 PM GMT

By: DailyWealth

InvestorEducation

Steve Sjuggerud writes: You hear it all the time... but it's completely wrong.

I know, I know... It sounds so right and sensible, it must be true. But it's completely false.

It drives me nuts.



"Expert" after "expert" repeats this lie on the financial news... and the "experts" sitting across from them never correct the lie.

For me, it's an easy way to know if an "expert" is legitimate or not. If he spouts this lie, he doesn't know investing.

The simple, innocent lie goes something like this: "Well... the economy is doing better, so the stock market should do better, too."

Sounds believable. But it is simply not correct!

The truth is, to make the biggest gains going forward, you want to buy into a "bad" economy – one where economic growth is zero or lower. The lesson of history is clear:

• When the economy is doing great, chances are stocks will underperform over the next year.
• When the economy is doing badly, chances are you'll do very well in stocks over the next year.

This isn't just my opinion, this is a fact...

You see, with my True Wealth Systems service, I have access to the best financial databases in the world. So to answer this question as completely as possible, I looked at U.S. stock prices versus the U.S. economy going back to 1800.

Astoundingly, since 1800, when the economy has been doing really well (when "real GDP" has grown at 6% a year or more over the preceding 12 months), you would have lost money in stocks over the next 12 months.

On the flip side, when the economy was contracting (shrinking), you'd have made a lot of money in stocks. The compound annual gain in the S&P 500 Index a year later was 50% higher than the gain in the index with "buy and hold."

You might say, "Steve, what happened in the 1800s doesn't matter as much here in the 2000s."

OK. Well let's take a closer look... Quarterly data for U.S. economic growth starts in 1947. So let's start in 1947 instead of 1800. The results turn out the same.

Since 1947, simply buying and holding stocks would have earned you a 7.3% compound annual gain.

But when the economic times are great – when the economy has grown at 6% a year or faster over the preceding four quarters – stocks have delivered a compound annual gain of 4.2% over the next 12 months.

Meanwhile, when the economy has contracted over the preceding four quarters, stocks have delivered an astounding 18.5% compound annual gain over the next 12 months.

Look... You've even experienced this effect – recently!

The economy was shrinking for all of 2009... Stocks bottomed in early 2009 and then soared!

You know what I'm saying is true.


You see, great conditions get "priced in" to the stock market. By the time things are great, stocks are usually too expensive (and due for a big fall). When things are terrible, stocks become very cheap. You want to buy when things seem terrible.

You do make money in "normal" times, of course... But the biggest gains come after the economy has been shrinking. And stocks perform their worst after the economy has had a great run of growth.

Don't let the "experts" tell you any different!

Good investing,

Steve

P.S. We spent almost $1 million putting True Wealth Systems together. We've backtested it in 48 different sectors... including biotech, steel, gold, and emerging markets. The results are incredible: 249% gains in India... 331% gains in the tech sector... even 101% gains in safe "virtual banks." If you'd like to know more, I cover some of the details on how our systems work right here.

http://www.dailywealth.com

The DailyWealth Investment Philosophy: In a nutshell, my investment philosophy is this: Buy things of extraordinary value at a time when nobody else wants them. Then sell when people are willing to pay any price. You see, at DailyWealth, we believe most investors take way too much risk. Our mission is to show you how to avoid risky investments, and how to avoid what the average investor is doing. I believe that you can make a lot of money – and do it safely – by simply doing the opposite of what is most popular.

Customer Service: 1-888-261-2693 – Copyright 2013 Stansberry & Associates Investment Research. All Rights Reserved. Protected by copyright laws of the United States and international treaties. This e-letter may only be used pursuant to the subscription agreement and any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), in whole or in part, is strictly prohibited without the express written permission of Stansberry & Associates Investment Research, LLC. 1217 Saint Paul Street, Baltimore MD 21202

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Daily Wealth Archive

© 2005-2016 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife