A Very Interesting Quote From Sam Stovall of Standard & Poor’s

I was watching Bloomberg TV’s Open Exchange with Pimm Fox this morning. One of Pimm’s guests was Sam Stovall, chief investment strategist at Standard & Poor’s. Today’s topic was the risk in the market and whether or not people are scared or should be scared. Here’s what Sam Stovall said:

“Since 1950 we have had 48 pullbacks – meaning declines of 5 – 10%. We’ve had 18 corrections – meaning 10- 20%, and 8 bear markets. At the worst on average we end up getting back to normal in about 3 1/2 years. But people just don’t want to wait that long and they let fear overtake their emotions.”

This is so true and the point of what I have been trying to say all along. No, there’s no guarantee that the market will move back up anytime soon. However, when your goal is decades away, there’s simply no reason to worry about a decline. If anything, consider the volatility a blessing because it is much easier to build wealth over the long run if you are able to purchase assets (stocks) at attractive prices than it is to build wealth when the market is constantly going up.

Here’s a link to the interview. Watch it! Also, Sam Stovall writes Sam Stovall’s Sector Watch each week in Business Week.

A Special Note to All You Personal Finance Bloggers Out There: This is where the rubber meets the road. Instead of scaring the bejeebers out of your readers, do a little stock market history reading and offer some hope. Pick up a copy of Jeremy Seigel’s Stocks for the Long Run or The Future for Investors (Affliliate Links) and learn about the market. You’ll be glad you did!

18 thoughts on “A Very Interesting Quote From Sam Stovall of Standard & Poor’s”

  1. Hello:

    What would anyone here recommend to a new investor like myself? My objective is long term. How would I go about entering into the market?

    I would like to begin by taking one step at a time, slowly but steadily.

    So, if anyone can recommend how can I setup or what brokerage firm to get in touch with or if you have any specific recommendations, I would be grateful and thankful.


  2. You are so right JLP. The thing people should realize is that they are buying companies, not playing roulette (unless they are in it for the gambling aspect). In the future companies will exist, customers will exist, they need to buy things, all that. Those are the the fundamentals .. not P/E ratios, technical charting, and other BS that your average non-professional trader is not going to know or care about. As long as you think the country you live in will continue to exist then you should feel safe enough to invest in the companies.

    If you have money and you want to be rich then you must invest it. Just about the only place to invest money on a retail basis for your average Joe is the stock market. The more you wait the more time you lose.

  3. I think you’ve been right on the money (ahem) with these types of posts (not to mention taking it up with Trent at simple dollar). There is nothing more emotional to deal with than money and it takes a special kind of person to attempt to remove their emotions.

    What troubles me is that of all these great finance writers spreading wisdom about asset allocation, risk tolerance, better financial, how not to be nervous etc etc etc, there are still others (like Trent) who come along and miss the boat completely.

    Anyway, keep up the good work. (For the record, I’ve long enjoyed thesimpledollar, but now that my financial house is in better order, I find myself drawn away from posts about cooking for leftovers and more interested in the types of bigger, more complicated issues you cover.)

  4. As a asset accumulator, I’m very glad P/E (and P/B) ratios have come down. They were in the stratosphere, and I was starting to wonder if we’d see another 1999 bubble.

    Contrary to Customers Revenge, valuations matter. The problem is how to use that information. Economists debate this, but only Shiller has anything that looks at all useful to the small time investor (see his book, _Irrational Exuberance_).

    BTW: In his newer books, Seigel has become less enthused with stocks – at least in general terms. He is now recommending dividend-producing stocks.

  5. Ouch, just looked … S&P 500 is only up 2% to date!

    Not bothering me though; however, buddies of mine at work check their 401k’s EVERYDAY! I just laugh.

  6. Very well said. It is along the lines of Warren Buffet’s advice to investors. Play the game with a vision for long term benefits.
    FIRE Finance

  7. In response to Ryan: Contrary to Customers Revenge, valuations matter. The problem is how to use that information.

    Valuations matter to more sophisticated people. The more sophisticated you are the more information you can use. Average Joes will not know anything however. In which case you always go back to the basics of what a company is and do you generally think companies will be around.

    Advice for the Average Joe: Just buy index funds every month.

  8. JLP, re: your special note to PF bloggers: The vast majority of personal finance bloggers are not professionals and are pretty darn clueless. I cannot imagine the harm that is done when people blindly follow advice they read on a blog. Your warning, though well intentioned, will probably not help. Thanks anyway.

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  10. Recommendations? It is not complicated.

    1) SAVE. Money Markets and CD Ladders are the necessary first step that so many will avoid… with excuse after excuse. Just start.

    2) Invest regularly and wisely for the long haul in the world’s greatest companies using DRIPS and no/low cost index funds and ETF’s. Good record keeping is a must.

    Do this and teach it to your friends and children with all the example, patience, and love you can muster.

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