${Html.ActionLink("My MarketWatch", "index", new { controller = "composite", area = "section", page = "my" })} | !{Html.ActionLink("Sign out", "LogOff", new { area = "User", controller = "Account" }, new { id = "signOutLink" })}
Welcome, ${UserDisplayName}
Log in
Become a MarketWatch member today
Paul B. Farrell Archives | Email alerts
April 10, 2012, 12:01 a.m. EDT
Want to see how this story relates to your portfolio?
Just add items to create a portfolio now:
Create Portfolio or Cancel Already have a portfolio? Log In
By Paul B. Farrell, MarketWatch
SAN LUIS OBISPO, Calif. (MarketWatch) "” "During the last 50 years, we have had 12 bull markets and 11 bear markets "¦ The bull markets averaged going up about 100% and the bear markets, on the average, declined 25% to 30%," said William J. O'Neil, Investors Business Daily publisher, in the first edition of "How to Make Money in Stocks."
And "the typical bull market lasted 3.75 years and the classic bear market lingered only nine months."
A dark pool is an electronic platform where investors trade shares privately, away from more transparent stock exchanges. What do they have to hide? Lam Thuy Vo shines a light on dark pools.
And "did you know that in the last 100 years we have had more than 25 bear market slumps (natural, normal corrections of the previous bull market advance) and every single time the market recovered and ultimately soared into new high ground. That's fantastic. It's one of the greatest success stories in the world."
Sounds great long-term. But what about 2012? Fund guru John Waggoner opened his latest USA Today column: "The bull market, now in its fourth year "¦"
The market's peaked? Are we now betting on an aging bull that's over-the-hill, three months older than the "average" bull? Back in March 2009, when S&P 500 was under 700, I predicted a bottom and the start of today's new bull. But now I'm worried. You should be too.
Why? The market's surrounded by unpredictable macroeconomic warnings: Hong Kong economist Jim Walker warns of an Asian economic collapse. International Monetary Fund managing director Christine Lagarde warns of the deepening euro-zone debt crisis, high unemployment and huge protests over austerity programs.
Add to that Iran's nuclear threat, our irrational election politics, and investor fears that Bernanke's cheap money will end soon. There are black swans everywhere.
So how should you play this market: "Sell in May and go away?" Really? Till when? Come back after an "average" bear? In nine months? Wait till January 2013? Miss a year-end rally?
Or maybe just flow with life's natural market cycles, enjoy the summer, relax through the elections, holidays? Maybe stay out till New Years? Maybe not? Maybe ignore the news and the forecasters? Trust your gut. Buy and sell on your own forecasts. Seriously, you really can do better than the professional forecasters "¦ and we have 10 reasons to prove it.
True, market cycles got bigger in the past couple decades since O'Neil first reviewed a full century of market cycles. We know, we predicted the 2000 dot-com crash. The 2008 meltdown, years in advance. Plus, today's rally from a March 2009 bottom under 700. We also know few listened. Not just to us, but to all forecasters.
Why? Our brains are wired to filter out bear warnings. We love happy talk, tune into good news. Our brains regularly sabotage us.
Once I asked fund manager Ted Aronson about strategies. A bear was on the horizon. Ted's firm AJOPartners manages $21 billion. What about his family's retirement portfolio? When to get in and out? Take advantage of cycles?
He warned: "For good reasons and bad, I'd hold tight. The good include my faith in capitalism and its ability to weather a storm, even one of biblical proportions. The bad reason is I have no faith in my ability to time this sort of thing. Even if I got out in time, I probably wouldn't be able to correctly time getting back in!"
"Sell in May and go away?" That's irrational. Yet so many of America's 95 million investors believe the forecasts they read, hear. And keep gambling in Wall Street's high-risk casino, ignoring legendary management guru Peter Drucker's warning: "Anybody who tells you that he understands the American economy ought to be sent to teach modern dance."
Want more proof? In "Stocks for the Long Run," Wharton's Jeremy Siegel studied market turning points from 1801 to 2001. In 75% of the time found no rational reason for the turns.
Where to go if you "?sell in May and go away'
Earnings, Fed talk, economic data on tap next week
10 top concept cars at the New York Auto Show
China doomsayer sees crash coming
2012 Dodge Avenger
Stanley Cup: The long, brutal slog begins
Anonymous hacktivism helps the banks
Through Wall Street's looking glass
You are the best predictor of next bull or bear
Trading Strategies: Spring Cleaning
Buffett is Wrong on Taxes, Says Arthur Laffer
Europe's Week Ahead: Air Traffic, PMIs & Payrolls
Where the Buys Are in Bonds
Paul Farrell writes the column on behavioral economics. He's the author of nine books on personal finance, economics and psychology, including "The... Expand
Paul Farrell writes the column on behavioral economics. He's the author of nine books on personal finance, economics and psychology, including "The Millionaire Code," "The Winning Portfolio," "The Lazy Person's Guide to Investing." Farrell was an investment banker with Morgan Stanley; executive vice president of the Financial News Network; executive vice president of Mercury Entertainment Corp; and associate editor of the Los Angeles Herald Examiner. He has a Juris Doctor and a Doctorate in Psychology. Collapse
On the Markets
Gold's sentiment foundation bullish
Writing on the Wall
Anonymous hacks help the banks
The Economist's Corner
Through Wall Street's looking glass
Read Full Article »