Unloved Bull Markets

Chapter 10Six Pieces of Bad Information

There were six special beliefs that could have caused investors to miss this great bull market. All the way up, investors were told stocks were too expensive based on the price/earnings (P/E) ratio of the S&P 500 Index. Second, in 2010, some investors took the double-dip recession scenario to an extreme and predicted deflation. Third, corporations were buying back shares of their stock, which for some reason was viewed with suspicion. Bearish investors believed the buybacks were the primary force driving stock prices higher and reasoned, if they quit, look out! Fourth, some observers dismissed the earnings growth because they were disappointed with slow revenue growth. Fifth, by 2016 investors feared that corporations had excessive amounts of debt, which could lead to bankruptcies. Finally, in 2019, an inverted yield curve drove many investors to the sidelines in fear of a subsequent recession. Overpriced? Deflation? Corporate buybacks? Inadequate revenue growth? Excessive debt? Inverted yield curve? Looking back, we know investors should have ignored these situations and bought and held stocks. Let's take them one at a time.

Overpriced?

Besides the imperfect economic recovery, which could have persuaded investors to avoid stocks, there was regular commentary on TV, radio, and in print that the market was expensive, or overpriced. Throughout the multiyear market advance, we have seen analysts caution investors with regard to owning ...