[Strategy Week] The End of an Investing Era
By almost any way you measure it, 2015 has been the worst year for the U.S. stock market since the onset of the “Great Recession” in 2008.
The global economy has been reeling ever since, requiring massive cash infusions from its central bankers to avoid collapse. We’ll never know just how bad things may have gotten if they had chosen a different course, but it’s not unreasonable to assume that a long and painful recession may have ensued, or even a deep depression.
It’s also no coincidence that 2015 was the year China finally owned up to the myth of the “Chinese Economic Miracle”, as the government finally admitted to slowing economic growth that ultimately resulted in it having to devalue its currency to make its exports more competitive. That triggered a quick stock market correction here in the United States that wiped out what little gains it had realized up until then for the entire year.
Caught in the middle, both figuratively and geographically, was Europe, which struggled to prevent the dissolution of the Eurozone while attempting to solve the Greek debt crisis. Although they managed to keep the union together, it came at a substantial cost which may hinder growth in that region for years to come.
All of these events are interrelated, and signal the end of an era.
For the past thirty years the stock market has benefited from declining interest rates, but with the Fed now in the process of reversing that trend an entirely new approach to successful investing will be required.
Right now, I’m as convinced as ever that investors who stick to passive strategies that closely mirror major indexes are destined to be SEVERELY disappointed in the years to come.
Let me be clear: I firmly believe the new investing era we’ve just entered means the average return for the stock market will be much lower than it has been in the past.
You see, when the stock market’s average return has been in the 8 – 10% ranges as it has been for the past thirty years, most investors are willing to accept it. But when the average drops to half that – as many analysts believe it will – the average may no longer be acceptable.
However, a stock market average is just that – an average of every individual stock that is included in that index.
From a purely mathematical perspective, some stocks will perform better than the average, while others will do much worse. What is often overlooked is the discrepancy in performance between the best and worst groups of stocks, which can actually widen at the same time the overall average is going down.
Unlike a bull market when a lot of stocks are doing well and performing within a relatively narrow range, we’re entering new type of “two-tier” market. It’s a foreign concept to many investors blinded by the “rising tide” market of recent years.
However, I firmly believe we can have one group of stocks performing quite well while most of the others are neglected, flat-lining at best.
All of my research tells me that we are heading into a similar dynamic for the next several years.
In that case what’s vital is a robust filtering and vetting system for identifying individual stocks that are likely to perform better than the market average.
In this kind of market, that’s the only choice you have to outperform.
Thankfully, we’ve seen this developing with enough time to prepare. In fact, for the past few months I’ve been working behind the scenes with the newest member of our analyst team on a very special project.
I’ll explain more in tomorrow’s update, but if you’d like to make sure you’re alerted as we roll out new updates and bonus reports as part of our 2016 Strategy Week, you can join our priority notification list by clicking here.