It’s instructive to look back on the comments that we published in 2000 as the bubble, in hindsight, was about to burst:
“The issue is no longer whether the current market resembles those preceding the 1929, 1969-70, 1973-74, and 1987 crashes. The issue is only – are conditions more like October of 1929, or more like April? Like October of 1987, or more like July? If the latter, then over the short term, arrogant imprudence will continue to be mistaken for enlightened genius, while studied restraint will be mistaken for stubborn foolishness. We can’t rule out further gains, but those gains will turn bitter… Let’s not be shy: regardless of short-term action, we ultimately expect the S&P 500 to fall by more than half, and the Nasdaq by two-thirds. Don’t scoff without reviewing history first.”
- Hussman Econometrics, February 9, 2000"
The NASDAQ ended up losing 78% by its low and the S&P lost about 50%, as he said they would. Yes, it took some time to get to those points, but once it did, it was ugly and he called it.
Many don't realize that this kind of analysis does not take excessive time. Keeping it as simple as possible is the best way to eliminate confusion and error. Investing in equities is purely an analysis of what you believe your profit to be over a certain amount of time based on risk and potential reward. Right now, the risk is too great for not enough reward on a time horizon of 5-10 years. Will it go bad today or tomorrow? Who the heck knows?
As I told my Bloomberg sales rep the other day and I repeat very often to others "Bull markets make the Average Joe look like an investment genius." It's easy to say things will continue going up because if they don't, everyone else lost too, so you're among a large company of bad investors. If it continues to go up, it's easy to say "See, I told you." The question becomes not how well you do when everyone else is doing well but how well do you do when everyone is losing their shirt.
I will continue to look dumb and feel the bruising of my ego for a bit longer, but one day that will change...and I will talk about how great equities are and valuations are so good while others are saying "Stocks are the worst investment to be in." Trust me, that day will happen. And when it does, you need to start buying because that is when fortunes and wealth is created....