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Nicklaus: 10-year bull market is a win for buy-and-hold investing

08 March 2019

(St. Louis Post-Dispatch)

March 8, 2019 (David Nicklaus)

Chalk up a landmark victory for patient investing.

Saturday marks the 10th anniversary of one of the scariest bear-market bottoms in history. By March 9, 2009, major stock indexes had lost more than half their value in 17 months. The bank system was shaky, corporate profits had withered and big companies like General Motors were headed toward bankruptcy.

Nevertheless, stock prices turned upward and have mostly been climbing ever since. As of this weekend, the longest bull market in history is 10 years old.

That milestone comes with caveats, which we’ll mention in a moment, but the major message of the last decade is clear: American-style capitalism is a resilient beast.

Think about the events that could have sent the bull to the sidelines: the yearslong European debt crisis, periodic U.S. government shutdowns and the downgrading of Uncle Sam’s debt, the collapse of oil prices in 2014 and 2015, China’s slowing growth and a trade war.

“The market can really look beyond a lot of things that seem to be big worries at the time,” says Gary Barohn, chief investment officer at Correct Capital Wealth Management in Clayton. ” It’s why you should not overreact to any one event.”

Despite all the worries, a buy-and-hold strategy has been hard to beat. Including dividends, $1,000 left in the Standard & Poor’s 500 index a decade ago has grown roughly $5,000, an annual return of more than 17 percent.

What accounts for such a remarkable run? Ken Crawford, senior portfolio manager at Argent Capital Management, theorizes that the decade’s modest pace of economic growth didn’t encourage the excesses that derailed past bull markets.

“As we look at it, even today stocks arguably are somewhat undervalued,” Crawford said.

“The last time we had a long bull market it created the internet bubble, and valuations were at levels that were eye-popping. That’s not the case today.”

Bull markets don’t die of old age; this one could last as long as the economy remains solid, but future returns may be more modest.

Blake Emerson, head of investments in the Clayton office of J.P. Morgan’s private bank, says the early-cycle gains, which came as investors regained faith in the stock market, are behind us. ” At this point of the economic cycle.. we view future market returns to be pretty well correlated with earnings growth,” he said.

According to FactSet, analysts expect corporate profits to grow 4.1 percent this year and 11.5 percent next. Forecasts for more than a year ahead tend to be on the rosy side, but such numbers could carry this bull market into its second decade.

Nitpickers argue, however, that we’re not really at the 10-year mark. A bull market is usually defined as a period of rising prices without a 20 percent loss, and the S&P 500 meets that test based on daily closing prices.

Twice, in 2011 and last December, the S&P 500 hit intra-day lows that represented a 20 percent drop. Based on that, some people would say the current bull market is less than three months old.

Then there’s the fact that the S&P 500 remains 6 percent below its record high, which was set Sept. 20. Hypothetically, if the market falls into bear-market territory before it sets a new high, history would record that this great bull market ended about six months short of its 10th birthday.

Don’t let such technicalities mar your celebration. If you’re a buy-and-hold investor who stayed the course through the past decade, give yourself a round of applause.