Lessons From the Long Bull Market

Although the common investment dream is to be brilliant enough to dodge the bear, for most investors the real opportunity lies in being positioned to catch the next bull

John Rekenthaler 14 August, 2015 | 10:04AM
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Who Knew?

This has been quite the streak. Since March 2009, we've had almost non-existent interest rates, good inflation-adjusted results from bonds, and outright terrific stock performance. Six years ago, few saw this coming. Where we collectively erred:

Don't Fight the Fed

This seems obvious. And indeed, it was obvious. After all, ‘don't fight the Fed’ has been a slogan for several decades now. With short-term interest rates pushed down near zero after the 2008 market crash, forcing cash yields to follow, investors were pushed towards risky assets. As usual, they obeyed the investment maths.

Not many fund managers reaped what in hindsight appears to have been the easy money. One problem was a lack of cash. While active funds in theory can beat indexers by raising cash during downturns, then shopping when the bargains appear, in practice they rarely accomplish the feat. The timing is just too difficult. Also, most managers believed that while the central banks normally work asset-class miracles, this time was different. Which leads to the next point …

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John Rekenthaler

John Rekenthaler  John Rekenthaler is vice president of research for Morningstar.