Why bother with anything else than buy-and-hold if stocks are going up, anyway? Always? Or at least eventually?
I stumbled upon the following chart and inspired me to write more about the stock market today.
What is stated on the above chart in the upper part (as a fact) is indeed true.
What is stated at the bottom of the chart is like saying that the politicians can sometimes say things that are not completely true. While that statement is the truth, it doesn’t convey the full picture either. Just as it would be fair to add that some politicians will outright lie in everyone’s face just to get their votes (and then conveniently ‘forget’ about the promises made later), it would also be useful to mention that the buy-and-hold is not a cure-all for everyone.
In the very long run, stocks – especially when diversified geographically across many stock markets – move up as the world continues to develop, economies grow and companies’ revenues increase.
But:
- The above chart doesn’t show all the world stocks, just the U.S. stock market, which has been outperforming other stock markets for a long time now, and it seems that this is not sustainable in the medium / long run.
- Right in the middle of the above chart – in 2020 – we had the covid / lockdown scare that triggered massive money pumping that caused prices of everything, including stocks to balloon. This is not a recurring even (hopefully…), and if we took it out of the equation, the increases in stock prices would have most likely been much smaller.
- The ten-year period is too short to draw meaningful conclusions about a general rule for investing. I know the statement below the chart doesn’t explicitly say that it’s a rule that applies to everyone, but it doesn’t indicate otherwise, either.
Now, let me show you some other stock market – the Japanese index of Nikkei 225:
I’m quite convinced that those buying at the 1990 top also thought that stocks can only go up and you have to simply “wait everything out” and it will be all good. After all, look at the preceding years – even if you bought at each previous local top, you would gain more shortly.
And then…
Oops.
After buying at the 1990 top, you had to wait 34 years to just get back even.
Oh, wait! One wouldn’t get back even, because the chart features nominal price moves, not real ones. The cumulative inflation in Japan between 1990 and 2024 was about 21%, so it would take Nikkei 225 even 21% higher for the investors to really come out even.
Plus, one still has to be around, and 34 years is a long time. If people bought stocks in 1990 while being already retired, even if they’ve been patiently waiting for stocks to get back to their purchase prices, they might have not been able to personally realize those trades.
Realistically, most people likely didn’t have that kind of patience, and they dropped the towel sometime between 1990 and 2024.
The buy-and-hold doesn’t seem like the cure-all as after all, does it?
- “But the U.S. stocks are doing great – why bother with other markets; all this doesn’t apply to the U.S. indices!”
Well, it’s not the first time in history when the U.S. stocks have been doing great…
(Chart courtesy of Otavio Costa)
The U.S. stock market’s valuation is… How do I best describe it… Excessive.
For over 70 years, there U.S. stocks haven’t been so extremely overvalued compared to the rest of the world as they are right now. Will this dominance stick?
I doubt that we would escape the “history rhymes” rule. What could be behind this outperformance? The post-covid stimulus? The U.S. being leader in the AI adoption?
The AI adoption might be the differentiating factor, and if so, it’s unlikely to stay. The rest of the world will catch up or… It might be the case that the U.S. stock market will fall more than the other markets as it turns out that AI doesn’t change that much.
Remember Nvidia? The stock performance leader of the AI era?
Sure, the last several years still look impressive, but what is much more telling is that NVDA confirmed its breakdown below its rising support line (both previous attempts were quickly invalidated – not this one), and that it confirmed the move back below its previous high. The previous highs use to hold support levels (especially in mid-2024), but this wasn’t the case recently.
We don’t need to wait for it or debate it - this time already IS different.
So, should we expect the U.S. stock market’s outperformance to continue? I doubt that.
Moreover, let’s not forget that the outperformance is one thing, but a decline that takes all stock markets down is another factor that one should keep in mind.
The world stocks have just failed to hold above their 2007 highs (and so did FCX about which I wrote much more on Friday – I continue to think that there’s a great trading opportunity in it), which means that they are likely to slide – either right away, or soon.
Also, looking at the above chart, it’s no longer such a great idea to just buy and hold, right?
And now, let’s move to the factor that could drown the stock markets (and perhaps damage the housing markets as well) – the long-term interest rates. Unlike the short-term rates, they haven’t declined much, and in fact they are moving back up as of recently.
I’d like to quote something from Simon that he put as a comment below one of my articles. In short, in this particular comment, he wrote what I’ve been thinking for some time, but that I didn’t write as I was focused on the chart analysis. Just when you thought that interest rates are going down and businesses and mortgage holders will have it easier, it turns out that…
Here’s some more perspective:
From the long-term point of view, the long-term interest rates moved to extremely low levels and have only started to move back up. They have much further to go. And as the interest and mortgage payments go up significantly, how can this affect homeowners (thus, consumer spending) and companies’ balance sheets?
Exactly.
Plus, we already see that the shift started to take place.
In all three previous cases when the mortgage rates vs. the 30-year yield spread topped, we saw major tops in world stocks, in U.S. stocks, and… in gold stocks. Remember the 2008 and 2020 slides (and remember how we bought the 2020 bottom within about 30 minutes of it being formed?)
The writing is on the wall, and while repeating to oneself that all one needs to do is to be patient and wait out any upcoming declines might simply not be the best approach that one might take. Of course, that just my opinion only, not an investment advice. It’s simply the case that in my opinion, it’s much better to not wait out the bigger declines, but actually be positioned to profit from them. And – in my view – the market is providing us with excellent opportunities to profit from that.
I already wrote extensively about FCX on Friday (also, if you haven’t had the chance to read it so far, I encourage you to do so, as it includes details on JDST and JNUG – why shorting the latter might be preferred for some, and other replies to questions from my subscribers), so I don’t want to discuss it in detail once again today – just a quick update:
In short, FCX moved higher yesterday, but – as I wrote previously – a breather after completion of the head-and-shoulders formation is perfectly normal, and it doesn’t change anything. The very bearish outlook remains intact.
It seems that we’ll be taking profits from the current short positions in FCX and GDXJ (entered on Nov. 22 with GDXJ above $48) shortly.
As always, I’ll keep my subscribers informed.
Merry Christmas from Us – Unpack Your Present
The vision of quick gains and taking profits soon is not the only present that I’ve got for you for this Christmas (or Holidays season, if you’re not celebrating Christmas).
Remember how I told you that Rick Ackerman forecasted $2,803.40 as the likely top for gold on September 12, when gold moved past $2,576? (Gold topped at $2801.80 – almost exactly at Rick’s target.) Or when I wrote about Rick’s success with shorting bitcoin well above $100k?
Rick has over 40 years of experience, has his own unique trading system (the Hidden Pivot method) and no less unique writing style, and he’s providing a service called Rick’s Gold & Bitcoin Radar exclusively on Golden Meadow.
The amazing news that I have for you is that Rick agreed to provide his service completely free – no strings attached – for two weeks to everyone on Golden Meadow. You don’t need to do anything to activate it etc. – we’ve set everything up and you can simply access the service and enjoy it. So… Enjoy
Rick’s premium service consists of two premium spaces:
- Rick’s Gold & Bitcoin Radar, which is a space with a list of articles, just like what you’re used to in other spaces,
- Rick’s Trading Room, which is the first chatroom that we publicly launched on Golden Meadow. Perfect for quick Q&A, brief comments on the opportunities, and – most of all – for discussions involving Rick’s Hidden Pivot method. There’s a welcome message from Rick waiting for you there.
A note regarding notifications. You will now get notifications about new posts posted in the Rick’s Gold & Bitcoin Radar, so that you won’t miss the premium details. Rick usually posts there less than once per day, so it shouldn’t take that much space in your email inbox. As for Rick’s Trading Room, the default notification is set to notify you only if you are tagged in the conversation, and not otherwise. If you want you can adjust those settings, so that you are either never notified, or so that you’re notified whenever anything is posted – even if you’re not tagged. Simply click the three dots in the upper right corner and then select your preferred notification setting.
Also, I wasn’t joking around when I wrote about Rick’s unique writing style. He’ direct, to-the-point, and sometimes very vivid when describing how he sees things. I personally love it, but I know it’s not everyone’s cup of tea. Here’s an example from today’s analysis of the bond market by Rick:
„The chart shows interest rates on the Ten-Year Note rising over the next 8-12 months to 5.5% from a current 4.5%.
This will devastate the economy and lay bare the delusion that America’s economy is booming. The 5.5% figure is deceptive, because, presumably, it will be achieved with asset values falling. If we repeat the experience of the Great Financial Crash of 2007-08, that would imply real rates (i.e., adjusted for deflation) rising to as high as 6%-10%.
That would usher in an economic depression at a time when the U.S. economy is in much worse shape to weather adversity than in 1929. Back then, a third of the workforce was tied to the agricultural economy, literally living off the land.
This time, perhaps 80% of the workforce is tied to bullshit. That figure is not invented, by the way; it is simply extrapolated from Musk’s firing 80% of Twitter’s employees without impairing the company’s ability to carry on normally.”
As I wrote earlier, I just love it.
Now, not all gifts are welcome by everyone, so if for any reason you don’t want to get notifications about Rick’s premium analyses, simply navigate to your notifications settings on and disable notification’s for Rick’s Gold & Bitcoin Radar – and that’s it, you won’t be receiving them.
Finally, like I mentioned before, Rick is using the Hidden Pivot methodology, which is not very popular, and which is one of the reasons why it works quite well. I mean, haven’t researched its performance over long periods, but I’ve seen it work multiple times over the course of a few weeks, which is enough to say that it’s worth looking into.
In order to help you become familiar with what Rick is doing, I asked him to record a video explaining it based on the current situation, and that’s exactly what you’ll find below. We’ll add it to a separate page soon, but for now, here it is:
All right, I think that’s it for now, and I hope and trust you’ll enjoy Rick’s Gold & Bitcoin Radar as much as you’re enjoying the current profits. I encourage you to go to the Rick’s Trading Room and say ‘hi’ :).
If you’re not yet on Golden Meadow and you’d like to gain access based on the above gift, you can do so using the following link:
This is also the link that you can share with others and they will be able to access Rick’s Gold & Bitcoin Radar for free (no credit card required) as well.
And yes, Rick’s Gold & Bitcoin Radar is included in the Diamond Package, so those, who are members of this exclusive club will keep their access beyond this gift access without any further action being required on their part.
Thank you for reading today’s analysis. If you liked it, and would like to stay notified about new ones being posted completely free, I encourage you to sign up to my free gold newsletter today.
Thank you.
Przemyslaw K. Radomski, CFA
Founder, Editor-in-chief
P.S. The precise profit-take level for the trade in the GDXJ, as well as the details of the new trade (besides FCX; with even greater potential in the near term) are things that I’ll reserve for my subscribers and I encourage you to join them today.