With all the discussion of the current economic situation in the US, jobs, deficits, etc.. it constantly amazes me how short term oriented and myopic investors can sometimes be. In this regard I think we could gain some insight by looking at what’s happened in Japan since 1990. Barry Ritholz at the Big Picture has a great post comparing the Japanese and US stock markets from their great boom peaks. Take a look.
As the famous saying goes, history doesn’t necessarily repeat but it often rhymes. In the most optimistic light I can put this, there are enough gloom and doomers out there already, I would say that post a huge bubble, markets tend to go through long sideways periods. And that the US is most likely going through one of these periods now. Personally, I don’t see this ending any time soon. Adjustments take time, a long long time in fact. If this is the case then an investor needs to adjust to the new reality and have strategies that work in this kind of environment.
In these kind of sideways markets, dividend and income strategies tend to work better than others. Buy and hold does not work. And in such volatile markets having a larger cash position than normal is prudent and allows and investor to take advantage of the interim down markets. That’s my 2 cents anyway…