The Waiting Is The Hardest Part

Man, what an awful stretch of events.

When I penned last week's article on tragedy, little did I expect something as horrible as the Las Vegas massacre would immediately follow. And nearly lost in the headlines was the untimely passing of rock legend, Tom Petty, one of my all-time favorite musicians. Sure can't wait for this week to be over...

In memory of Tom, I've been listening to a lot of his and the Heartbreakers' best hits. The lyrics to one song in particular, The Waiting, well-captures an important message today's investors should take to heart:

The waiting is the hardest part
Don't let it kill you baby, don't let it get to you

Those waiting for the financial markets to experience some sort (any sort!) of pullback have been waiting a long, looong time. How long?

  • It has been over 100 months (more than 8.5 years) since the current bull market began in April of 2009
  • It has been 15 months since the last (and very brief) drop of 5% in the S&P 500
  • This past September saw record low volatility, including a stretch now claimed to be “the most peaceful days in the history of the markets
  • Since last year's presidential election, at which point the markets were already considered dangerously overvalued, the Dow Jones Industrial Average is up over 20%
  • As of this article's publishing, the Dow, the S&P and the NASDAQ are all trading at record highs

Or, to put it visually:

The stock market is now 70% higher than it was at the previous bubble peak immediately preceding the 2008 Great Financial Crisis.

Reflect for a moment how painful the crash from Oct 2008-March 2009 was. How much more painful will a crash from today's much dizzier heights be?

Prudent investors have asked themselves that very same question as the markets have become increasingly overvalued over the past 8+ years. Many of them -- myself included -- concluded that the future risks greatly outweigh the prospect of future returns, and pulled much of their capital out of the markets onto the sidelines. And since doing so, many of them -- again, myself included -- have watched prices climb higher and still higher again.

It's understandable to feel great frustration both at the irrationality of today's market prices and at the emotional sting of missing out on the gains they've been delivering to those who have blithely remained long.

But it's very important to remember we've been here before many times throughout history (and pretty recently when reflecting back on the Tech and Housing bubbles). While today's levels are at a historic extreme, markets have always swung from periods of overvaluation to undervaluation -- and then back again.

During the peaking process, the siren call to join the party is incredibly hard to resist. Waiting out the irrational exuberance leading up to a market top is painful. Profitable returns are everywhere. How can you turn down making such easy money?

As Tom Petty sympathized: The waiting is the hardest part.

But the disciplined few who can wait out the mania of a bubble become the big victors once it pops. Capital that they've held in reserve as "dry powder" can suddenly purchase assets at half (or even less) the prices they commanded just months earlier. This has happened in (recent) living memory: the S&P 500 lost 50% of its value between its 2007 high and its 2009 low.

So the big question to ask yourself is: Do you have the fortitude to endure the wait?

I ask myself that a lot. Because "doing nothing" is hard. Especially when listening to the gloating of those enjoying the returns on their portfolios, unconcerned and uninterested in any warnings the fundamentals might be waving.

But I draw strength to remain committed in my course from several areas. One of them involves an argument made by Peak Prosperity's resident technical analyst, Davefairtex, who posits that a successful investing strategy can involve just a single move every half-decade or so:

In my opinion, the market has always been a skimming machine that funnels money and wealth from the many into the voracious maws of the few.  Here's the intro of a book written in 1940.

Where are the Customer's Yachts? -- Fred Schwed, Jr, 1940.

Once in the dear dead days beyond recall, an out-of-town visitor was being shown the wonders of the New York financial district. When the party arrived at the Battery, one of his guides indicated some handsome ships riding at anchor. He said,

“Look, those are the bankers’ and brokers’ yachts.”

“Where are the customers’ yachts?” asked the naïve visitor.

--Ancient story

Hussman offers a methodology to keep "the customers" from repeatedly getting their pockets picked.  He uses a very long term "10 year expected returns" calculation to show if the market is expensive or cheap.  Right now: expected return for the next 10 years is about 0%.  Message to "the customers": don't freaking buy!

As a charter member of the "customer" group, you will need to stay away from the market for many years if you use this metric.  As a reward, you won't suffer the 40% drawdowns and sell at the bottom, and you will have the opportunity to buy low - right down there at the bottom when fear is at maximum.  Everyone will think you are stupid for years at a time.  You will miss out on years of ponzi and have to endure years of worry.  You will not have very much company to make yourself feel better.

Good news is, you'll only need to make a decision once every 4-6 years.

Can you do it?

For those curious to see for themselves what the Hussman chart Dave refers to looks like, here's the most recent version, which now predicts a negative total average return for the next 12 years:


I like Dave's direct challenge of "Can you do it?". Do you have the emotional fortitude to resist the allure of easy returns when the market is delivering them week in and week out? Can you resist the very human urge to try to "beat the market" in any given year, and instead simply wait for the obvious periods of undervaluation that indicators like Hussman's chart above will identify for you? And if you can, will you have the iron stomach to deploy your capital at those times, when everyone else is decrying their losses and claiming the market is a death trap?

I aspire to answer "Yes!" to each of those questions. I think many of you reading this do so, too, which is why I'm sharing all this. I find it helps tremendously to be reminded of the fundamental reasons why we are choosing safety today in order to enjoy opportunity tomorrow. And to know that you're not alone in your stoic discipline.

Also, there *are* valuable actions we can take today while we wait for the market to re-adjust. 

One is to take good care of your capital while you're keeping it on the sidelines. I've written in the past about the insultingly-low interest rates (e.g., 0.06%) offered by savings accounts at most banks these days. There are ways to get 15-20x higher return on your cash savings with no loss of safety or lengthy tie-ups. Ask your professional financial advisor for a range of such options -- or schedule a free discussion with our endorsed advisor, who will detail the solutions they recommend (including several of which you can do on your own).

Another is to educate yourself on which indicators (like Hussman's expected returns chart above) to track to monitor where we are in the boom/bust timeline. We discussed a number of those in last month's excellent Dangerous Markets webinar with Grant Williams and Lance Roberts (if you haven't already watched it, you really should). But we're really going to dig deep into which key data to monitor at our upcoming Peak Prosperity summit in New Orleans on October 27th. Join us there if you can.

And last, remember that besides Financial Capital (aka 'money'), there are seven other Forms Of Capital that require an equal degree of your attention. Growing your wealth balance in each one of them is every bit as important as your financial net worth.

Tom was right: The waiting is the hardest part. Best we use that time as wisely as we can. 

This is a companion discussion topic for the original entry at

Thanks for the shoutout to Tom Petty. He was behind some of the best rock music of the 80’s, IMHO.
“Where are the customer’s yachts?” Classic line!

Here is a recent comment from Charles Hugh Smith:

"I have publicly proposed a "schedule" in which a preliminary disruption/ crisis (such as a currency crisis, oil shortage, sharp global recession, etc.) in the 2018-19 time frame forces the central banks/states to change the rules and create even more trillions with even greater abandon.

This calms the water for a few years but only increases the systemic instability that finally breaks through the veneer of permanent convenience/ good times in the 2021-25 time frame."

It sounds to me that Charles is saying 2021 - 2025 is when he sees the next big crisis emerge. How high will the Dow be by then?

That's a long time to wait (if he is right), especially when the central banks keep the markets rocketing upwards. Consider too that forecasters are usually very early on their calls.

When the elites change the rules in the next big crisis, wouldn't it be to their advantage to benefit those who hold financial assets/stocks?

I've been out of the market the last 9 years, and still question the wisdom of that decision, especially going forward.

davefairtex wrote:
Good news is, you'll only need to make a decision once every 4-6 years.
Something David Collum said several years ago had stuck with me ever since:
davidcollum wrote:
My variant of such a sequential trek via imbalanced portfolios changed in decadal rhythms as follows: 1980–88: exclusively bonds (100%) 1988–99: classic 60:40 equities:bonds 1999–2001: cash, precious metals, shorts (minor) 2001–2013: cash, precious metals, energy, tobacco (minor) Minimal trading, decent long-term investing returns, and tons of patience. So simple in a rear view mirror. So tough in practice.

Right on Adam. Check out this rendition:

Right on Adam. Check out this rendition:

Life requires effort. The FED Put Era has created lazy investors. This has also resulted in negative moral effects. A simple question: is all money good money?

I always like to ask “so then what?”
The central banks have now driven financial assets to the highest levels ever on record, and volatility to a new record low.

So then what?
Where exactly does the Fed, et al., plan to go from here? Even higher? Okay. So then what?
Eventually all financial assets are remembered to be claims on real wealth. Nothing more, nothing less. Real wealth is real stuff produced and consumed in the real world.
Is that growing larger, exponentially larger, every year? No, it is not.
Are these financial gains spread evenly across the populations they (allegedly) serve? No, they are not. They are heavily concentrated in the hands of a few.
There’s nothing long-term or sustainable about anything the central banks are doing. They are sowing the seeds of future destruction. They need to be held accountable too.

Been thinkin about poor Tom as well and how he got gunned over by all the news. A great artist. The song that sticks in my head these days is “Last Dance with Mary Jane” He we all are, pulling out the dead corpse, pretending its still alive, and moving around till the music stops

KugsCheese said: “This has also resulted in negative moral effects. A simple question: is all money good money?”
For me, the hidden blessing in being out of the market (I don’t mean poverty) is that I am avoiding the temptations of financial greed and pride which I see in my dear beloved friends and those viciously laughing at my foolishness. I am realistic about my financial limitations and spend a lot less of my precious time worrying about my portfolio. Being incredibly stubborn I simply will not change course at this point except perhaps with money, as Andy Tobias says, I “can truly afford to lose.” I invest in doing for others in ways other than giving money which has been a good learning experience as well.
I have to be prepared for my worst case scenario which is that the FED will massively inflate further to keep the markets up up up. Chris’ advice on how to deal with an inflationary environment has been helpful in this regard.
Thank you Adam for discussing a very difficult topic which is kind of the elephant in the living room for many.

As reported previously, I bailed from the “market” in early March '09. Check the date, I think it was the last market low…Ha! Slept like a baby…Looking back at that decision, well, I still can chuckle. Laughing to keep from crying…My question is, when a correction occurs, with all the financial, social, worldwide devastation that may possibly ensue, will there be a “market”? Will there be something financially and morally palatable to invest in given the environmental state of the world at that point, and its effects? Is “holding dry powder” just a hopeful story we tell ourselves to avoid the likely reality? What would be the likely worldwide reality with a 50% or more worldwide “market” collapse? Aloha, Steve.

At this point I’m all for pumping the bubble up more, if only as an assurance of Von Mises’ quote below. Sad that the cost of 100 years of central bankster “borrowing from the future” may simple mean no future for many and little future for those that remain (banksters included).
“There are two means by which to learn a uncomfortable truth. One is through insight, the other through pain.” - author unknown
Truth be told, we need a really nasty banking crisis.

What if the market as it is now becomes defunct. For sure it’s good to not be in it when that happens.
Then we have to get personal with investing again. Mentor and financially back someone starting a business that you understand. Own farmland and learn to personally oversee and manage a leasee so you don’t get taken for a ride.
There is a big difference between ‘being in the market’ and being on the board of directors. The latter is where most good opportunities will present themselves. Having other forms of capital in play when the crash/rule rewrite happens will also be essential to make this work.

If it will be unbearably painful for the many who are invested at the time of the crash, what makes us think that they won’t take our dry powder to make themselves feel better? Last time, the bst seat to be in was that of the bankers who had invested badly. Not only did they get to buy high-end hookers and blow, right up until the crash, they then got the bailout on our own dollars, AND THEN double bonuses. Is it different this time? If so, how?

‘‘Capital that they’ve held in reserve as “dry powder” can suddenly purchase assets at half (or even less) the prices they commanded just months earlier.’’
Undoubtedly it will. Congratulations. But just not for you. Same as last time. Right after the TARP business owners’ cash was able to buy up their houses, their places of business, their inventory, for pennies on the dollar. Just not for them.
That privelege was reserved for the deserving bankers.
Maybe ous model needs some adjustment?
(BTW… I clicked on "I am not a robot’ immediately before posting this, and was told that my Captcha answer was not correct. Can someone tell me how to change the selection to “I AM a robot” so that I can make my post?)

Indeed Chris has had on more than one guest that has said that, in the future, me may not have a market, or at least anything that resembles today’s version

If I look at the long term cagr for the S&P I get an interesting observation. If you take the S&P in 1933 at 200 when it has bounced back some from the 1929 crash and do a cagr calculation to today 2,500 I get a capgr of 3%. Is 3% a reasonable long term growth rate? If so then is the S&P at 2,500 unreasonable? The S&P looks high based on EPS data. However 3% cagr over 84 years seems low.

The other thing is, gold, which is so often touted as the thing to be holding when tshtf didn’t do squat in 2008 when the indexes blew up. Rebounded a little at the end of '08 but flat through the year and way down though most of it.

The other thing is, gold, which is so often touted as the thing to be holding when tshtf didn’t do squat in 2008 when the indexes blew up. Rebounded a little at the end of '08 but flat through the year and way down though most of it.

I’m not sure 2008 qualifies as TSHTF. A semi-big deal in the financial world, yes. A “thank God I at least have some gold” moment, unfortunately, is still looming before us…Aloha, Steve.

The economy and markets are good now because various central banks are still printing over $100B per month. Debt is readily available to both the public (mortgages etc) and countries (Ireland negative bonds) because of all this fresh cash. But CBs are starting to taper.
So Then what?
There will be a stock market downturn and recession, maybe 2018
So Then what?
The central banks will quickly reverse course and start money printing again (as it ‘worked’ before)
So Then what?
The markets will probably recover (into 2019?). The printing will continue until negative consequences are seen i.e. consumer price inflation (2020? 2021?)
So Then what?
This will force the CBs to really taper and tighten, to control inflation
So Then what?
This is when the real crash/depression will occur due to higher interest rates and the forced withdrawal of QE.