I’ve posted Entry #300 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called The Bad Side of Bull Markets.
Juicy Excerpt: Imagine two investors who starts with a portfolio value of $10,000 and then add $10,000 in contributions for every year of a 30-year returns sequence. Say that one of the investors experiences 10 percent gains for each of the first ten years of the 30-year sequence and that the other investor experiences 10 percent losses for each of the first 10 years of the 30-year sequence. The return sequence beginning with 10 years of gains produces a closing balance of $796,051. The returns sequence beginning with ten years of losses produces a closing balance of $2,435,295. Bear markets pay off big-time for long-term investors. You’ll be able to retire much sooner if only you are lucky enough not to live through a prolonged bull market like the one we saw come to an end in January 2000.
It turns out that the stock market works just like every other market that has ever come into existence. Price drops are good news. Price increases are bad news. Time periods in which we see one price increase after another for many years in a row (bull markets) are horrible setbacks for us all. It all works just the opposite from what the Buy-and-Holders have been saying for 50 years now.