Don't get off the train

We used to say "You have to stay on the train." As you can see from the video above of a Caltrain "baby bullet" going by, when it gets moving you can't jump on very easily!

The same is true of markets.

We have argued several times before that this is where investors make their most damaging mistakes. Research bears this out.

As unbelievable as it seems now, there will be a turn in what seems to be a never-ending bear market cycle. When the markets will turn back up is anybody's guess. However, when it moves, it can move very rapidly. Try stepping on to the baby bullet train in the video above as it blows past the station.

Of course, an analogy is never perfect. Obviously, trains do give you an opportunity to get onto them, even bullet trains. However, history shows that market moves are concentrated into a few big days and weeks. Unlike a train, the market does not print a schedule and tell you when those will be.

This is why we have always emphasized focusing on the business and not the market prices, as we discussed in this previous post, as difficult as it might be in this environment.

There are some indicators that the economy may be turning around, although the markets are not. For example, look at this chart below (from of the Baltic Dry Shipping Index, which measures the price of shipping dry goods (as opposed to shipping oil), and indicates the demand for raw materials used in manufacturing.

Note that the S&P 500 Index generally tracks along with the Baltic Dry Index fairly closely (they are somewhat correlated). For example, after the 2000-2002 bear market, the blue Baltic Dry Index line is clearly seen moving up, and shortly after that the green S&P Index line begins its rebound.

In the chart above, you can see that the Baltic Dry Index at the far right has moved up sharply in 2009. The green S&P line is still plunging.

When will it turn around? We don't know. However, investors may be wiser to "stay on the train" rather than to jump off now and try to jump back on. The train is currently backing up and moving forward, backing up and moving forward, and if it does take off in a big way forward, as it did in 2003 and 1975 after those major bear markets, jumping on is a lot harder than people think it is.

For later posts on the same subject, see also:
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