Today the Dow Jones Industrial average made a new all-time high at 14,253. To many technical analysts, this was the last hurdle that needed to be reached to confirm a new bull market. Lucky for us, that this is now official. The four year run from Dow value 6,547 in March 2009 producing a gain of 120% must have been just a warm-up we assume.
History again has confirmed a very important lesson: no one can predict the direction of the markets over the short term! In March 2009 the economy looked the bleakest in our history. Unemployment was rampant, stock markets were crashing, the European Union was disintegrating and on and on. Scared investors feared they would lose everything and moved out of stocks to bonds and the safety of CD’s and Treasuries. While bonds have had good returns up until recently, they pale in comparison to the equity returns. CD’s and Treasuries have stayed below .5% and have crushed many retirement plans.
While it is an important milestone when market indexes break out above their old highs, in this case it must be pointed out that the last high that it eclipsed was over 5 years ago in 2007. These indexes like the Dow Industrials, S & P 500 and others are unmanaged indexes of a basket of stocks. 30 stocks in the Dow Industrials, 500 largest companies in the S & P 500 Index and so on. It is felt by many experts in the financial field that investing in these unmanaged indexes by way of index mutual funds is in the best, most cost effective way to invest in stocks. We feel differently. Searching the overall universe of mutual funds available (over 20,000 today) and identifying quality managers by using a definitive set of guidelines can produce significantly better returns over time. In this time period example the Dow Industrials and S & P 500 took over 5 years to overtake its best market top. Many of the managed funds with proven managers attained this feat two years ago! Once again, history has confirmed that well managed portfolios can and do outperform unmanaged indexes.
So much for the past. What will the future bring? Again, no one knows. But…if the financial markets and corporate America managed to keep their heads above water and produce gains over the last four years of weather disasters, world financial and political fiascos, high unemployment, and this country’s complete breakdown of political leadership at every level, then an investor has got to be optimistic! Investors must remember this important fact: we do not own countries, or states, or the weather. We own actual companies and those companies are adapting to market changes and are doing so quite well.
The past thirteen years provided us with a rocky equity market, historically low interest rates, a real estate crash, very tame inflation and a great environment for bonds. It is beginning to look like the next thirteen years may be the exact opposite of the past thirteen. Follow your long term plans.