Getting Back to Making Serious Money


Getting Back to Making Serious Money

Dave Gilbert here, Editor of Smart Money.

Have you checked the weather forecast today?

I have, and chances are, you have, too. According to one survey, 90% of Americans check it at least three times a day.

We’re wired to want to know what’s coming, to be prepared, to make the best decisions.

That’s the essence of investing: You put your money into an asset because you expect it will be more valuable in the future.

We rely on history, data, indicators, and anything else we can find to help form educated predictions about the future rather than mere guesses.

Some indicators have a better track record than others.

Economists are not one of them…

An economist is an expert who will know tomorrow why the things he predicted yesterday didn’t happen today.


That statement is from Laurence J. Peter. You may not know of him, but you probably know about the famous “Peter principle” he formulated – the management concept that people in an organization rise to the level of their incompetence.

Since we’re all apparently obsessed with the weather, how good are meteorologists’ forecasts?

Government data indicates that short-term forecasts tend to be quite accurate, but if you go out to 10 days and beyond, it’s basically a 50-50 crapshoot.

And then there are investors. Perhaps Warren Buffett said it best…

Forecasts may tell you a great deal about the forecaster; they tell you nothing about the future.

Fair enough. But what if I told you there is one technical indicator with a perfect track record since 1950, and it recently signaled the worst of the bear market is behind us? It may even portend the start of a new bull market …

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The Magic Number?

This indicator is a technical one, but it is easy to understand. It is referred to as a 50% retracement.

When the S&P 500 has recovered half of its decline from high to bear-market low, it has never gone on to make new lows (in the last 72 years). This time around, that 50% recovery from the June lows was at 4,231, which the S&P closed above on August 12.

a chart depicting when the S&P 500 closed above 4,231 on August 12, it had regained half of the decline from the January 3 closing high

It’s settled then, right? We’re in a new bull market, right?

… Well, maybe. But maybe not.

Indicators, even if perfect until this point in time, will never be 100% accurate.

And let’s not forget what we might call the laws of investing physics: For every bullish indicator, there is an equal and opposite bearish indicator.

So, what the heck is an investor to do?

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What We Know for Certain

As a Smart Money reader, you probably already know that Eric Fry focuses less on the market and more on massive macro trends and great companies operating within those trends. He is now encouraging his readers to step into the market and buy great stocks on the cheap.

Does that mean the worst is behind us? That the market won’t fall another 30%? Here’s Eric’s answer…

I’m not sure.

All I know for certain is that stocks are much cheaper now than they were last fall. Although the major averages have bounced nicely from their mid-June lows, they are still trading 10% to 20% below their all-time highs, and many excellent stocks are down 50% or more.

I also know that major averages like the tech-heavy Nasdaq Composite rarely fall as much as they have recently. But when they do, they usually offer outstanding investment opportunities.

From the Nasdaq’s November peak to its June low, it fell 34%. A drop of that magnitude has happened only five other times in the last 50 years! (The Nasdaq did not even fall that much during the COVID swoon of early 2020.)

Those five selloffs produced outstanding investment opportunities, on average. Two years after these lows, the Nasdaq had gained 19% on average. Five years later, the Nasdaq had advanced 84%, and 10 years later, the index had soared 384%.

But remember, these are the average results. The 1990 low produced a spectacular 10-year total return of 894%, while the 2000 low deliver a 10-year loss of minus two percent.

Certainly, the stock market is offering much better opportunities today that it was last fall, when stocks were hitting record highs…

Believe it or not, the Nasdaq is now in a bull market because it has gained more than 20% from its lows. But that’s just another indicator, and it may or may not stay that way.

Eric’s view is that a new bull market in opportunity has arrived.

The bear market could technically hang around for a while longer. But remember this: It is not so much a stock market as a market of stocks.

Many individual stocks probably have already bottomed, and that is enough for smart investors to start making serious money again.



On the date of publication, Eric Fry did not have (either directly or indirectly) any positions in the securities mentioned in this article.

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