Meeting with British Prime Minister Gordon Brown yesterday, President Obama said: “What you’re now seeing is profit and earning ratios are starting to get to the point where buying stocks is a potentially good deal if you’ve got a long-term perspective on it.”
I always get a little nervous whenever politicians start commenting on the stock market. Particularly, whenever Mr. Geithner opens his mouth, the selling starts. The president, however, is a very optimistic person and he has a great ability to inspire people.
His words seem to be working. The market is up early in today’s trading. Of course, the market has fallen for 11 of the past 12 sessions which is something we haven’t seen in nearly 25 years, so some reaction rally is to be expected. Personally, I wish the president had inserted the words “fundamentally superior” before saying “stocks.” That’s a key difference. I think investing in index funds is a huge mistake, and finding comfort is cash is also very dangerous.
I should add that the market doesn’t always do well over the long-term. Going from the stock market’s peak in 1929, it took 25 years to make a new high. There was also the awful period of the 1970s and early 1980s. To give you some perspective, on Barack Obama’s 21st birthday, the Dow Jones Industrial Average was only 11.5% higher than it was on the day he was born!
Even if the market the starts climbing from here at a 15% annualized rate, it will take four years just to match the Dow’s high from 2000. That’s 13 years of being underwater. The best way to build long-term wealth isn’t by buying any stock; it’s by focusing on the strongest stocks. The Hulbert Financial Digest ranks my Emerging Growth service the #1 investment advisory over the last 24 years. We’ve not only beaten the overall market, but we’re lapped it again and are close to doing it a third time.