Chapter 1. Fasten Your Seat Belt

Sideways Markets Are Here to Stay

Get ready for a great roller-coaster ride in the markets. For the next decade or so the Dow Jones Industrial Average and the S&P 500 index will likely do what they did over the preceding decade: go up and down, setting all-time highs and multiyear lows along the way. But at the end of the ride, index and buy-and-hold stock investors, having experienced ups and downs and swings akin to those on an amusement park ride, will find themselves pretty much back where they started. This is all well and fine for visitors to Six Flags, but not really what most of us want for our investments and savings.

The length, the velocity, and the twists of the ride are yet to be written by history, but the flat long-term trajectory has been ordained by the 18-year bull market that ended in 2000. Using history as a guide, until about 2020 (give or take a few years) the U.S. stock market will likely continue to stagnate. Welcome to the sideways market!

Take a Trip to the Zoo

When we think of market direction we think in binary terms: bull—going up, and bear—declining. But what about markets that go nowhere over time? They are known as sideways markets and they look quite different from bear markets, although the distinction is seldom made. All long-term markets of the last century, with one exception, were either bull or sideways.[1] Since investors are used to associating animals with the direction of the market, I suggest a moniker for ...

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