Economic And Finacial Growth

By Author: Anthony Green
Total Articles: 36
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On an economic and financial level, those 18 years have been a time of considerable growth. This gave rise to an almost continuous bull market. The mini-bear markets of 1987 and 1990 were almost exclusively Wall Street phenomena, in that little or no damage was done to the economic and financial health of the companies, which stocks represent. The major uptrend remained intact. But the long-term investor, who did not sell out before August 1987, found himself with major losses just 2 months later. And, by October, there was a lot of panic selling. But the investor who took a view would have known that October 1987 was not the time to sell.

However, if that same long-term investor had looked at the underlying financial and economic structure in the late 1960s, he would have seen that not only was there a bubble mentality in electronics stocks, but that there were profound fiscal problems which were eating away at the economic health of American companies. This ultimately led to double-digit inflation. A new major bull market did not begin until the inflation was squeezed out of the economy.

Between 1929 and 1932, ...
... the economy sustained tremendous economic damage. Even though the Dow rose 268% over the next 5 years, the damage caused to the economy and the dollar was not resolved until 1942. Thereafter, a sustained bull market began, which did not end until 1966. My point is that the simplistic conventional definitions of bear markets, that simply measure the extent of the drop in the various Averages in some sort of ratio to the time it takes for the drop to occur, are not very helpful to an investor deciding whether to unload his stocks at a loss, or hold on in hopes they will go back to their old highs.

This doesnt mean that one should have gotten out of stocks in early 1929 or 1966 and taken a holiday from the stock market for the next decade or so, although some people did. Instead, it means that when your taking a view indicators tell you that there are major economic and monetary problems that are likely to take a year or more to be resolved, you no longer can buy and hold, but should become a more watchful and flexible investor, playing the major up moves, but doing so with one hand on the exit all the way up.