Words of wisdom from Dave Landry’s new book, The Layman’s Guide To Trading Stocks:

Wall Street Myth 1: The market always goes up longer term

It seems to be universally preached that the market “always goes up longer term.” And, all you have to do is buy a diversified mutual fund or index fund and wait. The problem is that markets do not always go up longer term. Well, I suppose it all depends on what you mean by longer term.

Suppose you bought stocks in 1929 at the market peak. Provided you could have held through a 90% loss, it would then have taken you a quarter of a century just to get back to breakeven.

Let’s say you bought stocks in the mid-1960’s. Your return would have been almost zero until the market finally broke out in 1983, which was 17 years later.

When I began this chapter, I was concerned that there might be a “that was then, this is now” mentality. After all, the benchmark S&P 500 wasn’t far below breakeven from the 2000 peak. I thought I was going to have to make a strong case for not buying and holding. Unfortunately for the buy and hold crowd, the market made my case for me. The bear market that began in late 2007 would turn out to be the worst since 1929. By March 2009, the S&P was at 13-year lows. From these lows, the market will have to rally over 200 percent just to get to breakeven.

At more than one cocktail party, I have had people laugh in my face when I tell them that the market can go 25 years or more without going up. This has made for some heated discussions and awkward social situations. I have since learned from Dale Carnegie and my wife Marcy to just nod my head and enjoy my drink. Do not take my word for it, just look at the charts and grab me a Black and Tan while you are at it!