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The Stock Market – How Bad is it Really?

It’s pretty bad.

I’m glad that in our world of forex trading, stocks just aren’t welcomed! In fact, I have been in favor of alternative investments instead of stocks and the economically-sensitive real estate sector for years.

Since my post, “Stock Market Trades Below Key Support Level,” the Dow has fallen further. Just look at this cool chart to compare the magnitue of our little, never-ending stock market roller coaster ride in the US:

US Bear Market Charts
Click on the chart to enlarge it, then hit the Back button to return to this blog post.

The current bear market, which began in late 2007, is still alive and well. So far, only the extremely painful bear market of the Great Depression era (grey graph) is greater in magnitude. It actually took the stock market during that time a painstaking 25 years (from 1929 to 1954) to recover and exceed the peak it established before the bear market began.

Even though no one knows how long the current bear market in US stocks will last, a VERY SLOW recovery (also known as an L-shaped recovery) is a likely outcome.

I strongly believe that traditional investors who haven’t already realized the colossal risks inherent in stocks, will certainly do so during this slow-motion recovery period; especially those who give in to the “buy-at-dirt-cheap-prices” recommendations of many of today’s traditional investment advisors and financial planners.

This realization of the “true risks” of stocks might cause investors (both domestic and foreign) to “reprice” equities in their heads for decades to come, paying relatively lower multiples for each dollar of a company’s earnings. Consequently, annual stock market returns going forward could drop significantly – way below the historical 10%-mark.

Even if we assume a 5% annual rate of return for stocks from this point on, it will take the market over 15 years to recover to the peak value established in 2007 (near 14,200 on the Dow). Is the wait really worth it?

Due to the significant risks and opportunity costs I feel traditional investors will face going forward, I plan on writing a series of blog posts to address these issues in greater detail. My objective will be to educate investors and help them understand the true risk of the investment decisions they make, as well as the advantages of alternative investments.

I think this information is priceless and will help investors pull away from the traditional stock-market-and-real-estate-masses group; a must to survive any future crisis.