Friday, July 17, 2009

Art Cashin: The 17.6-Year Market Cycle

Whether Art Cashin turns out to be correct or not, it's often worthwhile for an investor to step back and think about longer time horizons for some perspective.

Consider the following from CNBC:

Cashin revisited his theory of "the 17.6-year cycle".

"It's like the Biblical story of the fat and lean years. During the fat, you can throw a dart at the wall, and anything you buy goes up."

Stocks may go up 7-10% per year on average in the long run but historically extended periods when markets move sideways (within a wide range) followed by long periods of returns well in excess of normal. For example:
  • 1966-1982 the market went bounced around but essentially went nowhere
  • 1982-2000 the market went up more than 10 fold
The average annual return across those 34-35 years was in the range of normal (7.5%). Within those periods...anything but normal.

We are almost a decade into one of those possible 15-20 year sideways grinds that Art Cashin describes.

Being roughly half way through would be the good news I guess.

Of course, the way it plays out might be a whole lot different this time around.

What really matters in the longer run is whether shares of good businesses can be bought at a nice discount to value.


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