How long will the bull market last, and will you stay the course when it reverses?
In terms of duration and magnitude, the current cyclical bull market is viewed as mature compared with prior post-World War II markets.
Most analysts believe the current bull market started in October 2002 and has lasted 50 months. Some maintain it began in March 2003 (when concerns over Iraq created a market low) but even then the 45-month run exceeds the norm.
Research by the Leuthold Group shows the S&P 500 has risen 82 percent from October 2002 through Dec. 12, 2006 (up 76 percent from the March 2003 low).
Thus, the magnitude of the current cyclical bull market essentially matches the post World War II median of 80 percent.
On a valuation basis, the S&P 500 has yet to match the extremes of most past bull market peaks.
However, in no way can the current stock market be viewed as undervalued, according to the Leuthold research.
While this information may be interesting, it should not change your long-term investment strategy.
Today the media provides never-ending streams of reports on the current winners and losers.
All this information can create a perception that investing is a game. To bolster this idea, you've probably heard the media say things such as, "it's time to move some money to the sidelines," or "get back into the game," or "protect your position."
A September 2006 Barron's cover story read, "Wall Street's top strategists see subdued gains for stocks in the coming months."
An illustration for the fourth quarter forecast showed a bull and a bear on a log in water. In very big letters the caption read, "Swimming to safety." And Barron's prediction? "When the curtain finally comes down, expect subdued applause."
The result was better, with the U.S. stock market as measured by the S&P 500 index returning 6.2 percent in the fourth quarter of 2006, according to Yahoo! Finance.
If you trade on all the fast-changing media reports and expect to sell right before a downturn or buy right before an upturn, forget about it.
Market timing is almost always disastrous. No one yet has been able to call market tops and bottoms accurately and consistently.
Time in the market as opposed to timing the market is the more practical way to try to capture long-term equity gains. Staying in the market may increase your chances of winning.
One of the biggest challenges is that investors feel reluctant to create and maintain well-diversified portfolios that can help smooth out some of the market volatility.
Now may be the time to rebalance your portfolio and make appropriate changes if necessary.
Many investors hurt themselves by either overestimating the risk of holding stock or underestimating the risk of not holding it.
At any point in time, the markets may look weak, but investors seeking long-term success may need to hold for the long term.
Will you stay the course?