March 7, 2019, 8:29 a.m. EST

Here’s why lessons learned from the 10-year bull market in stocks could hurt you

It was an unprecedented decade. And the future probably won’t resemble the past

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By Nigam Arora


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The 10th anniversary of the secular bull market in U.S. stocks is upon us. An unintended consequence is that some investors have learned the wrong lessons during that time.

For prudent investors, the 10th anniversary of the bull is a time to pause, set aside biases and opinions, shift into neutral and carefully read this article. Let’s explore with the help of four charts.

Please click here for a chart of the ETF /zigman2/quotes/209901640/composite SPY -1.40% , which represents the S&P 500 /zigman2/quotes/210599714/realtime SPX -1.41% .

Please click here for a chart of the Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA -1.83% from the 1960s to the 1980s.

Please click here for a chart of the Dow Jones Industrial Average from the early 1900s to the mid-1900s.

Please click here for a chart of Japan’s Nikkei 225 Index /zigman2/quotes/210597971/delayed JP:NIK +0.40% . Please note the following:

• The second and third charts show that there have been periods in the U.S. stock market when, depending on your starting point, passive investing would have not done well.

• The fourth chart shows if you were passively investing in Japan over 25 years ago, you would still be underwater.

• The first chart shows that The Arora Report gave a signal to aggressively buy stocks in March 2009, which turned out to be the start of this secular bull market.

• The chart shows that this has been a secular bull market with very few cyclical corrections that approached a bear market.

• The chart shows that volatility has been low compared to other periods.

• The chart shows that investors more than quadrupled their money from the low in 2009.

Ask Arora: Nigam Arora answers your questions about investing in stocks, ETFs, bonds, gold and silver, oil and currencies. Have a question? Send it to Nigam Arora.

Recency bias

The human condition as it is, most of us suffer from recency bias. That means people remember what has happened recently at the exclusion of the past. In other words, investors erroneously believe what has happened recently will happen in the future.

Do you really know with certainty that the next decade or two will be similar to the past decade or two?

Touted data

Investors are constantly bombarded with touted data, such as:

• The average return over the past 100 years has been absolutely fantastic. Do you have 100 years to live?

• The average return over the past 10 years has been great.

/zigman2/quotes/209901640/composite
US : U.S.: NYSE Arca
$ 311.75
-4.43 -1.40%
Volume: 30.55M
July 9, 2020 11:41a
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/zigman2/quotes/210599714/realtime
US : S&P US
3,125.32
-44.62 -1.41%
Volume: 1.04B
July 9, 2020 11:41a
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/zigman2/quotes/210598065/realtime
US : Dow Jones Global
25,589.84
-477.44 -1.83%
Volume: 163.11M
July 9, 2020 11:41a
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/zigman2/quotes/210597971/delayed
JP : Nikkei
22,529.29
+90.64 +0.40%
Volume: 0.00
July 9, 2020 3:15p
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