The August 22, 2010 New York Times carried an article (In Striking Shift, Small Investors Flee Stock Market) noting that investors resumed their net liquidation of common stock holdings in a material fashion (over $33 billion) during the first seven months of 2010. As we interpret price charts, the last secular bear market in common stocks ended in 1982 and was followed by the powerful secular bull market that ran from 1982 to 2000. In viewing a chart of the price change in the Dow Jones Industrial Average for the period leading up to the low price level in 1982, it appears that this particular bear market ended with a “whimper.” A defining characteristic of the end of most bear markets is retail investor “fatigue” with common stocks or a complete loss of faith in the instruments, and a desire for only the safest of investments. It often pays to be a contrarian, and one might reasonably consider that the present trend of liquidation of stocks is marking the transition from a secular bear market to a secular bull market. Bull markets are known to “climb a wall of worry” and we would be the first to acknowledge that there is no shortage of economic challenges that occupy the radars of most investors, but it probably makes sense to consider the inevitability of a better economic and equity market environment.
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