Thursday , 7 December 2023

Conventional Stock Market Investing Advice Is Rooted in Myth! Here Are the Facts

The conventional stock market investing advice is rooted in mythrooted in a false understanding of what the historical stock-return data says about investing for the long-term….Set forth below are five reasons why I believe that the conventional stock market investing advice must soon change. Words: 2067

So says Rob Bennett ( in edited excerpts from his original article* entitled The Coming Revolution in Stock Market Investing Advice.

 Lorimer Wilson, editor of (Your Key to Making Money!), may have edited the article below to some degree for length and clarity – see Editor’s Note at the bottom of the page for details. This paragraph must be included in any article re-posting to avoid copyright infringement.

Bennett goes on to say, in part:

Below are 5 reasons why I believe that the conventional stock market investing advice must soon change.

1. Stocks are NOT Always the Best Investment Class for the Long Run

The big downside of stocks is their volatility. The “Stocks for the Long Run” argument is that volatility doesn’t really matter so much to the long-term buy-and-hold investor. Sure, stock prices may go dramatically down for a time but, historically, they have always come back up in time. So, the argument goes, the buy-and-hold investor need not worry about volatility too much.

It’s a powerful insight. [While] it is true that buy-and-hold investors can provide for themselves a good bit of protection from volatility by investing for the long-term, this protection is not nearly as complete as most stock investors of today think it is, however. There is a second message in the historical data that argues against going with too high an allocation in stocks at times of high valuation–the tendency of stocks to snap back from price drops is greatly diminished at times of high valuation.

The historical data shows that stocks do not perform the same starting from times of low valuation, moderate valuation and high valuation. Anything can happen in the short-term for stocks purchased at any valuation level but the really bad long-term price drops almost always take place at times of high valuation. Following a buy-and-hold strategy helps you deal with the curse of volatility, but it helps a lot less at times of high valuation than it does at times of low or moderate valuation.

Does this mean that you should avoid stocks at times of high valuation? By no means, but the historical data does indicate that it is a mistake to ignore the valuation factor when deciding on how high a percentage of your portfolio to invest in stocks.

Go with a high stock allocation at times of low or moderate valuations, and you will probably do not too badly so long as you follow a buy-and-hold approach. Go with a high allocation to stocks at a time of high valuation, and you may experience so crushing a blow to your portfolio that you will find it impossible to maintain that high stock allocation for as long as you intended.

 2. Market Timing Works – Yes, Market Timing Works!

If there is one piece of investing wisdom that has been drilled into our heads over the past 20 years, it is that attempting to time the market is a loser’s game. Again, that’s partly true but also partly untrue. The conventional stock market investing advice needs to change to facilitate an appreciation of not only the part that is true but also of the the part that is untrue. [Read: Here’s How to Time the Market! ]

There is good reason for believing that short-term timing does not work. Perhaps it works in rare cases, but it is an investing trick so hard to pull off that most middle-class investors would be better off directing their energies elsewhere. So the conventional stock market investing advice has steered us well in steering us away from any temptations to engage in short-term market timing.

Who in the world is currently reading this article along with you? Click here

Long-term timing does work, however, and long-term timing presents us with wonderful opportunities for avoiding the losses that can be suffered by over-investing in stocks at times of high valuation and thereby preserving the capital needed to participate more fully in the more appealing long-term returns earned by those who purchase stocks at times of low and moderate valuations.

Why do I say that long-term timing works? Because the historical stock-return data shows it to be so. Here’s what William Bernstein, author of The Four Pillars of Investing, says on Page 55 of that book:

“Think about it, which would you rather know: the market return for the next six months, or for the next 30 years? I don’t know about you, but I’d much rather know the latter and, within a reasonable margin or error, you can.”

I’ll bet you didn’t know that. Most middle-class investors of today do not. That’s because the conventional stock market investing advice has steered them wrong. The conventional stock market investing advice has been so focused on warning us not to engage in short-term timing that it has failed to point out the great efficacy and value of long-term timing. It is as important to be aware of the benefits of long-term timing as it is to be aware of the dangers of short-term timing.

 3. Long-term Stock Returns are Pretty Darn Predictable

When I tell people what the historical stock-return data says about the effects of valuations and the efficacy of long-term timing, a frequently heard response is that stock returns are highly unpredictable and that knowing what sorts of returns stocks are likely to provide in 20 or 30 or 40 years requires the use of a crystal ball or consultation with a fortune teller. It’s not so.

Long-term stock returns are pretty darn predictable. They are by no means perfectly predictable but the reality is that in many different time periods in U.S. history, U.S. businesses have provided surprisingly similar long-term returns. You can’t predict how any one company will perform, of course but, if you purchase shares in a broad stock index, you are not buying a share in any one business but in all the businesses that make up the index. So long as the U.S. economy remains as productive as it has been in the past, you can possess on the day of purchase a good sense of what sorts of economic returns the asset you purchase will be generating over the long term….

The idea seems to have taken hold that stocks are essentially lottery tickets. That’s what people are suggesting when they argue that long-term returns are entirely unpredictable. The reality is that stocks are shares in businesses. When you purchase an index fund, you are purchasing shares in most of the companies making up the U.S. economy. So long as the U.S. economy continues to perform much as it has in the past, the returns you will obtain on purchases of a broad stock index will be more predictable than you realize from what you have picked up from listening to the conventional stock market investing advice of recent years.

4. No One Asset Class is the One Right Choice for All Times and All Circumstances

The exaggeration of the benefits of buying stocks that have dominated the conventional stock market investing advice in recent years is not a new phenomenon. Read investing books from many years back and you will see that there are cycles in the conventional advice that repeat over and over again. In bull markets, the negatives are greatly downplayed. In bear markets, stocks are made out to be the worst investment-class imaginable….

The key to successful long-term investing is ignoring the extremes both of the conventional stock market investing advice of bull markets and of the conventional stock market investing advice of bear markets. The reality is that stocks are a wonderful asset class, but that there is no one asset class that is the one right choice for all times and all circumstances. The successful investor does not permit himself to become too influenced by the overwrought arguments of either the bulls or the bears.

We saw play out before us the greatest bull market in the history of the U.S. market from the early 1980s through the late 1990s so we should not be too surprised that the exaggerations of the conventional stock market investing advice have in the past decade reached a level of intensity never experienced before. Those seeking financial freedom early in life cannot afford to focus too much on that sort of thing. We look to the historical stock-return data to temper the temporary enthusiasms that wreck such havoc on the investing dreams of both the extremist bulls and the extremist bears….

Sign up HERE to receive’s unique newsletter, Your Daily Intelligence Report
  • It’s FREE
  • It contains the “best of the best” financial, economic and investment articles to be found on the internet
  • It’s presented in an “edited excerpts” format to provide brevity & clarity of content to ensure a fast & easy read
  • Don’t waste time searching for articles worth reading. We do it for you and bring them to you each day!
  • Sign up HERE and begin receiving your newsletter starting tomorrow

It is my sense is that more and more middle-class investors all the time are becoming open to more tempered and moderate and sensible investing arguments. The great bull has run itself out. We are nearing the day when more investors will be looking in a serious and sober way to learning what the historical stock-return data really says about how to invest successfully for the long run.

The conventional stock market investing advice is rooted in myth. The myths have continued to stand in a wobbly sort of fashion through a time-period of about five years in which gains for those heavily invested in stocks have been less than stellar. I doubt whether the myths driving today’s popular stock market investing advice will be able to withstand too many more years of lackluster performance for stocks. A big price drop would of course lead to an even quicker disenchantment with the usual stock market investing advice of today.

5. Long-term Stock Investing Works – BUT is Extremely Difficult to Maintain

Not all of the stock market investing advice of recent years is bad advice. As noted above, there are powerful insights mixed in with the distortions that are symptomatic of the excessive stock enthusiasm typical of long bull markets. The most important of the genuine insights of the “Stocks for the Long Run” investing paradigm, in my view, is the idea of sticking to one’s stock investing strategy not for one year or three years or five years but for 10 years or 20 years or 30 years or longer. Short-term stock investing is a dangerous business for most middle-class investors seeking financial freedom early in life. Long-term stock investing works.

Unfortunately, the invest-for-the-long-term insight was developed during the greatest bull market of them all, and the enthusiasms of the day caused the insight to be distorted in serious ways. The idea has caught on that, since a great way to reduce the risks of stocks is to hold them for the long term, it is safe to invest all of one’s savings in stocks even at times of extraordinarily high valuations. Nothing could be further from the truth.

A buy-and-hold strategy is the way to go. That powerful insight puts on the table the most important and difficult investing strategy question of them all–How high can one go with one’s stock allocation and still hold out reasonable hopes of remaining a buy-and-hold stock investor when stock prices decline dramatically? I think it is fair to say that this question has received far too little consideration during the years in which the stock market investing advice driven by the Stocks-for-the-Long Run paradigm has been dominant. That needs to change.

Most middle-class investors should be aiming to be buy-and-hold investors – but how are they to achieve the goal when the usual stock market investing advice simply presumes the most important element of the strategy? The common thought today seems to be that, if you say that you intend to be a buy-and-hold investor, that will be enough to make you one in the real world. The historical stock-return data argues otherwise.

The buy-and-hold philosophy will likely be tested in years to come, as many middle-class investors become disillusioned with the returns offered by stocks purchased at high prices and determine that there are times when buy-and-hold investing is not nearly so exciting an approach as it has been advertised to be. True buy-and-hold investing really does make sense, however. We need to turn our attention in years to come to learning what it takes to obtain those great long-term returns that the historical data shows are available to those who adopt realistic buy-and-hold strategies. We will know that we are on the road to seeing that magic happen when we see a general loss of confidence in today’s usual stock market investing advice.


The old buy-and-hold is dead. Long live the new buy-and-hold!

To learn more about why I expect we will soon see a revolution in stock market investing advice, please take a look at this article on “The Famous Robert Shiller Stock-Market Prediction.”


Editor’s Note: The above post may have been edited ([ ]), abridged (…), and reformatted (including the title, some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. The article’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article.

Related Articles:

1. Be Careful! Former Investment “Rules” Nolonger Work – Here’s Why


Investment “rules” that were relevant for a century are obsolete. They were based on a world where economies grew, people’s standard of living increased and outcomes tomorrow better than today. Arguably each of these conditions will not hold in the future but if they don’t, neither do the rules of thumb that guided investing last century.  These guiding principles developed and worked in a world that that no longer exists but applying them in the future will result in devastating financial outcomes. [Let me explain.] Words: 1261

2. 12 Books that EVERY Financial Advisor – and Investor – Should Read


Bill Ackman, founder of Pershing Square Capital Management, believes the following books are essential financial reading. Enjoy the summer! Words: 235

3. Believe It or Not: U.S. Treasuries Could Be Best Performing Asset Class in the Next 1-2 Years – Here’s Why It’s Quite Possible


Could U.S. Treasuries be the best performing asset class of the next one-two years? It’s quite possible. I am sure this article is bound to stir up controversy, but I’d like to spend some time analyzing several drivers that could buoy bond prices in the coming months. Words: 1053

4. Futures Investing: Should It Be In Your Future?


While there are a number of funds and stocks that can be used to gain exposure to commodities, futures investing has long been the most popular and direct means of establishing a position. [Let’s examine just what futures are, who should use futures and identify the various futures exchanges,] Words: 922

5. Commodity Trading: Which Option Options (if any) Belong in Your Portfolio?


Commodity investing has been around for decades, but it was only recently that their popularity has spread to the general public. It is now generally recommended that investors set aside anywhere from 5% to 10% of their capital for a commodity allocation, as these hard assets generally offer uncorrelated returns essential to diversification. While many investors utilize stocks, ETFs, and futures to obtain their commodity exposure, options contracts can often be a better alternative to not only your commodity holdings, but for the remainder of your portfolio as well [Let me tell you more about options and also why they might/should have a place in your portfolio]. Words: 995

6. What Are Warrants, Options & LEAPS?

Investors are always looking for ways to maximize their gains and warrants, options and LEAPS are a good way to do just that. These investment vehicles are very similar to each other except for issue of time. [Let me explain.] Words: 752

7. Portfolio Down? Apply These Wise Sayings to Successfully Rebuild It


When the stock market reaches extreme levels of distress, the average investor – particularly those who have done their own research and made their own investment decisions – panic at seeing their savings diminish to such an extent. They often start questioning whether they should be making their own decisions and often their reaction is to salvage what is left and sell, sell, and sell some more. [Regretfully, that is not what one should do. Let me explain why that is the case and what you should be doing – NOW.] Words: 380

8. Words of Wisdom From the Most Brilliant Investors Ever


There’s a bewildering amount of advice on how to invest…so it’s worthwhile, especially in today’s volatile markets, to take a look at what has actually worked, as opposed to what people claim works. We’ve collected some of the finest wisdom on markets from the most respected and successful investors, past and present. Words: 865

9. Understanding Systematic Risk, Modern Portfolio Theory and the Efficient Frontier


Risk inherent to the entire market or market segment is referred to as systematic risk and modern portfolio theory says that a blend of investments has the potential to increase overall return for a given level of risk, and/or decrease risk for a given return that the investor is trying to achieve. The expected risk/return relationship is known as the efficient frontier. [If you have a portfolio of investments then you need to fully understand what all this really means and how you can apply it to your portfolio makeup to enhance returns under any circumstances. Let me do just that.] Words: 1325

10. Should Stocks Be the Cornerstone of Your Portfolio?


There is a common notion that stocks, at least if held for a long-time, outperform other assets [and, as such,] should be the cornerstone of any long-term portfolio. [While that is indeed true,] it is best to focus first on how much you are able and willing to lose (i.e. what risk you are able and willing to bear) when determining the optimal allocation for your portfolio. [Only] then [should you] think about what potential investment returns you might be able to capture. [Let me explain.] Words: 1503

11. Protect Your Portfolio By Including 15% Gold Bullion – Here’s Why


We are reading a lot of hype these days about gold and the necessity to own it but only about 2% of ‘investors’ actually have gold in their portfolios and those that have done so have insufficient quantities to offset the future impact of inflation and to maximize their portfolio returns. New research, however, has determined a specific percentage to accomplish such objectives. Words: 1063

12. Portfolio “Diversification” Can Kill Your Portfolio Returns – Here’s Why


Most investors don’t know anything more about diversification than you “shouldn’t put all your eggs in one basket” [but] spending some time trying to understand the ways you might be shooting yourself in the foot could seriously enhance your portfolio returns and stop catastrophic risk. [There are some advantages to diversification if you REALLY know what you are doing but the shortcomings can go a long way towards killing your portfolio returns. In this article we identify what they are and how best to avoid them.] Words: 1055

13. Motivated Stock Pickers CAN Beat the Market! Here’s How


What hope can there be for motivated stock pickers – no matter how much they sweat and toil – to outperform the low-cost index funds that simply mechanically track the market? Well – in spite of the absurd rise of the Nobel-acclaimed, and highly promoted, Efficient Market Hypothesis that claims that individual investors can’t beat the market – it turns out there is plenty! Just ask Warren Buffett, for one. [Let me explain.] Words: 1574

14. Don’t Invest in Mutual Funds! Here’s Why


The amount of evidence stacking up that…mutual funds…do not provide value for their investors is just staggering…While there are certainly signs that the public’s tolerance of excessive fees and executive pay is falling, the likelihood of significant structural change in the finance industry is still remote. Given such a backdrop the probability remains that investors in funds will, on average, continue to underperform their benchmarks. So what is an investor to do? [Read on!] Words: 830

15. Value Investing: The Practical Application of Benjamin Graham and Warren Buffett’s Principles

While the average amateur investor may be excellent in their own career field, it doesn’t mean they know what to invest in, or how to pick stocks. In fact being very good at your field can give you the false sense that whatever stocks you pick or your broker picks for you must be good, because after all, you picked them and you picked your broker — and you’re smart so, no doubt, those stock prices will go up. Unfortunately, the smart and talented stock-picking neophyte is not investing at all but speculating. Words: 924

16. Insights into the Bond Market and How to Trade Them


Although the stock market is the first place in which many people think to invest, the U.S. Treasury bond markets arguably have the greatest impact on the economy and are watched the world over. Unfortunately, just because they are influential, doesn’t make them any easier to understand, and they can be downright bewildering to the uninitiated. [This article provides you with an excellent understanding of what bonds are, the advantages of owning them and how to go about trading them.] Words: 1325

17. Consumer Discretionary Stock Performance Key to Market Direction – Here’s Why


Renewed leadership by the sectors that stand to benefit most from a stronger economy and profit growth down the road…could be one of the best indications that perhaps the worst is indeed behind us and the rally has more room to run. However, if these cyclical sectors fail to participate more fully, that would be a signal of more potential trouble ahead. [Let me explain.] Words: 840

18. Dividend Stocks Belong in Your Portfolio – Period! Here’s Why & How


If you don’t have dividend stocks in your portfolio, you’re making a costly mistake because the best-performing stocks over the long haul are dividend stocks. Period. Countless studies prove it, too. Don’t waste your time on Google trying to verify that claim. The evidence is right here! [Let’s take a look.] Words: 620

19. Attn. Financial Advisors: How Much Asset Class Diversification Is Really Necessary?


[No one would argue that] diversification is not a sound investment practice but exactly how much risk reduction, in actual numbers, is obtained through application of this philosophy? This analysis is an attempt to quantitatively determine its relevance – [and you will be surprised by the answer. Read on!] Words: 1317

20. Should Technical Analysis Be Ignored? We Think So – Here’s Why


The Web is crawling with technical analysis (TA)…[and,] given its popularity, [begs the questions as to whether or not there] really is something to it. [Based on our research,] the short answer is no, not really, at least not in developed markets like the US or the UK… Furthermore, most of the popular TA indicators that are bandied around are nonsense jargon and should be ignored as useless noise. [Let us explain our position.] Words: 2143

21. Extreme Investing: Do Leveraged ETFs Belong in Your Portfolio?


Some analysts and commentators are warning that this year (2012) could match or surpass the dire conditions experienced in 2008 with the promise of more turbulence from the Eurozone, further political wrangles over dealing with the U.S. budget deficit and a potential host of problems in emerging market countries such as a possible Chinese banking and real estate crash. [While you] should fear plummeting stock markets…there are actually some interesting ways to play the downside or hedge your portfolio. [Let me explain.] Words: 990

22. Ride the Market Waves With These 6 Momentum Indicators

It is hard to know what to buy or sell let alone just when to prudently do so. Thank goodness there are indicators available that provide information of stock and index movement of a more immediate nature to help you make such important decisions. This article describes the 6 most popular Momentum Indicators. If ever there was a “cut and save” investment advisory this is it! Words: 1234

23. Here’s How to Time the Market!

There are many indicators available that provide information on stock and index movement to help you time the market and make money. Market strength and volatility are two such categories of indicators and a description of six of them are described in this “cut and save” article. Read on! Words: 974

24. Yes, You Can Time the Market – Use These Trend Indicators

Remember, the trend is your friend and now you have an arsenal of such indicators to make an extensive and in-depth assessment of whether you should be buying or selling. If ever there was a “cut and save” investment advisory this article is it. Words: 1579

25. Understanding the Patterns, Trends, Indicators and Formations of Technical Analysis

Technical Analysis is the discipline of finding reliable patterns, trends, indicators and formations, mainly in price, for buying and selling assets…To a large degree, technical analysis is a self-fulfilling prophesy [in that] it is effectively an unofficial agreement amongst market participants to impose more order on what would otherwise be more random. The key is to understand which patterns, formations and indicators are widely adhered to, so as to become useful predictors of price action [and this article does just that. Let me explain.] Words: 470