Tags: investors | stock market | bulls | bears

Don't Look Back: Savvy Investors Revise Their Trading Strategy as Times Change

Don't Look Back: Savvy Investors Revise Their Trading Strategy as Times Change

By    |   Tuesday, 02 February 2016 09:49 AM


Bulls only seem to know about recent history. They commonly tell us that in the long run, stocks go up and deliver average annual returns of 7 to 10 percent a year. This is true since the end of the Second World War. But prior to that was a different story.

From 1871 to 1945, stocks delivered an average annual return of 3.3 percent a year. Bulls will immediately point out this time period includes the Great Depression. Realists understand it also includes the Second Industrial Revolution which ran from 1870 to 1914, a time which included the fastest growth in American history.

Long-term investors need to understand there are two “long-term” investment horizons to consider.  The question to consider now is whether this time is more like the time before or after World War II.

After the war, American money was used to rebuild destroyed allies and enemies and stabilize the financial system. This was truly unique. In the past, losers paid reparations instead of being rebuilt by the countries they sought to destroy.

Now, after seven years of extraordinary deficits, there is no more American money. There is only an economic experiment where currency has no intrinsic value and governments issue it at will. This experiment might lead to unprecedented growth and higher stock prices. Or, it might lead to chaotic conditions and low returns for decades as a new financial order evolves.

Investors should stop believing that buy and hold is always rewarded because it was only rewarded in recent history. Smart investors need to understand the world has changed and find solutions for the market we face rather than the one they want to face.

Michael Carr, CMT, is a subadviser to a mutual fund family and a chartered market technician. To read more Michael Carr, CLICK HERE NOW.

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MichaelCarr
Investors should stop believing that buy and hold is always rewarded because it was only rewarded in recent history. Smart investors need to understand the world has changed and find solutions for the market we face rather than the one they want to face.
investors, stock market, bulls, bears
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2016-49-02
Tuesday, 02 February 2016 09:49 AM
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