The sign on the booth touted a new, sophisticated computer-generated money management program. I walked inside and asked about stop losses. The young man replied, “Hold on to your stocks, the market always comes back.” I countered, “Can you guarantee it?” He pulled up a chart with some blips, concluding the market has always come back from a crash.
I followed with, “Can you guarantee it will come back in MY lifetime?” He responded, “No, you could get hit by a car or something.” He missed the point entirely.
In my recent article, “Stop Losses Are a MUST For Retirement Investors” I mentioned it took 25 years for the market to come back from the 1929 crash.
Subscriber John B. writes, “…You have to take inflation into account. How much purchasing power did you lose during that time? How long until you get back to the high that provides the same purchasing power?”
Subscriber, friend and former colleague, Jeff Clark went one step further, sending me his article, “This Chart Might Make You Rethink the Adage Stocks Always Come Back” which addresses the inflation issue.
I asked Jeff to do an interview.
DENNIS: Jeff thanks for your time to help educate our readers. I want to start by clarifying today’s discussion. The market is at an all-time high and has not had a major correction for quite some time. I’m not discussing the possibility of a major correction; personally, I think it is just a matter of time. I assume we are in agreement on this issue?
JEFF: First of all, thank you for inviting me. Yes, I agree with you. Our company founder, Mike Maloney feels the stock market is facing the mother of all crashes. That’s why I responded to your article on stop losses. Without them, a lot of investors can be badly hurt and the market may take longer to recover than they anticipated; perhaps never in their lifetime.
DENNIS: “Coming back” in our lifetime is a major concern, particularly when inflation is factored in. Before we get into the details, I thought it interesting when you discussed how “Stocks Always Come Back” is different for various generations of your family.