Why Stock Market Pessimists Should Relax

Lately, an increasing number of doom and gloomers are sounding off. They worry about the sluggishness of the U.S. economic recovery, an increase in interest rates, and a decline in America’s place in the world, especially as China rises. They should relax.

Ditto for investment “experts,” who offer all kinds of silly advice. The so-called experts may or may not have gotten it right once in their investment careers, but that doesn’t keep them from trying to make the headlines. No matter how good things are, there will always be people making dire predictions. Sometimes, this even comes from people who have credibility, and it causes us to wonder how they got that credibility in the first place.

Recently, a well-respected market strategist, Societe Generale’s Albert Edwards, forecasted an upcoming global recession that will push stocks to the lowest level in decades. Wow, that’s really a big, bold prediction.

The market hasn’t gone down 10 percent for several years and a bull market correction of 10 percent could occur at any time. It’s even possible with enough negative sentiment to have a quick 20 percent downturn, but we simply don’t see it being sustained at this time. Nor do we expect another experience like the 2008-2009 slump, given the deleveraging that has occurred at both an individual and corporate level.

Cash reserves for both individuals and corporations are at record levels. The people you see on TV or you read in magazines or papers are either trying to make a name for themselves, or sell their newsletter or some other product.

It is only by maintaining a disciplined investment approach that you can potentially survive and hopefully prosper. Those that hung in there during the recent bear market racked up significant gains over the intervening five years. We know that these gurus always have a plan to avoid disaster; still, the reality is anybody can be right once, but it’s really difficult to be right every time.