Over a long period of time it is true that stocks will tend to outperform the bond market, to say nothing of cash and certain other investments. But that period of time can be so long as to be irrelevant to the greater investing public, which tends to spend about 40 years in prime investing years. Someone who starts to build a nest egg at the age of 25 could have been lucky enough to do so in 1955, withdrawing their funds from equities in the late 1990s to shift to a recommended fixed-income portfolio, and absolutely rocked the long-term averages. But a person who started at age 25 in the mid-1990s got to see tremendous gains before it all went south and has since been treading water for ten years. Some 25-year periods have better annual average returns than others, and yet the person who ended her 25-year investing period with a substantial bear market ended up with less than someone else fortuitous to cap off two-and-a-half decades with a strong bull market.
Shopworn adages should not be construed as investment advice. There are times when buying and holding stocks is the best possible idea, and there are times when buying on pullbacks works like a charm. And there are also instances when both strategies will prove endlessly frustrating.
Not only are individual investors poor at timing the market, there are plenty of professionals that are just as bad. In fact, most of them are pretty bad, and the ones who are good aren't selling their advice to the public.
There's a lot to discuss about the vagaries of the stock market, but if we're going to continue on this journey of waking up, before we even discuss individual stocks, stock sectors, and stock indexes, we have some more deprogramming to do. I've already mentioned the need to turn off the television and close the magazines, but we need to look a little bit more at that. Then we're going to talk about what to do with your emotions and how you can best understand them so they play a key—but not overwhelming—role in your decision-making processes. First, let's look back at some of the worst prognostications of the last several decades, the ones that formed the basis of thought for many magazine subscribers in the last decade.