There’s a phenomenon that has the power to kill your investments, or really give them a boost. The problem is that it’s really not in the interests of financial advisers to let you in on it.
So what is it?
Long, drawn out market movements that really affect your investments are known as ‘secular trends’. These trends can make the difference between a timely and happy retirement and one in which you have to keep working to top up underperforming investments.
Some generations benefit by being on the right side of a secular trend, while others get caught on the wrong side and their investments get mauled.
If you look at a long-term chart (10 years or more) of any investment, you’ll usually notice a trend. That is a general upwards or downwards movement in its price. It’s absolutely vital that you get on the right side of a secular trend, or you’ll be hampered from the start.
Swimming against the tide in financial markets is crazy. Yet investment professionals habitually ignore the tides. Remember, the professionals are in the business of selling investments in the here and now. They’re not going to advise clients to hang on for a few years until the market looks cheaper, nor will they advise to sell if the market looks dear.
We need to discover these trends for ourselves, then invest accordingly.
What does a secular trend look like?
Japan ’s Topix 1980 until present
Japan’s stock market shows pretty clearly two secular trends. First, the secular bull from 1980 to 1990 and then, the secular bear from 1990 until present.
An important feature of the 20 year secular bear (1990 to 2010) is the ‘cyclical’ trends. These are the 4 mini-bull markets that form peaks at around the 1700 level.
It’s vital that you notice that these peaks eventually all reversed. The secular downtrend re-asserted itself in every case.
These cyclical moves can last for several years, but the secular trend ultimately takes over.
Of course, at some point the chart will reach a bear low. That’ll be the buying opportunity of a life-time. Investors will be so distrustful of the market that nobody dares invest...
What’s the secular trend in the FTSE right now?
The FTSE enjoyed a secular bull through most of the 1980s and all of the 1990s.This chart suggests that the FTSE is currently in a secular bear market. The two rallies since the dot-com top haven’t been able to reach back up to the 2000 high.
25 Year Chart of FTSE 100
The two rallies look very much like the cyclical mini-bulls we saw in Japanese market throughout the nineties and noughties.
The current cyclical rally (far right of the chart) looks like it’s starting to peter out now.
In the context of the Japanese chart, you’ll see that it’s not only possible that we’ll re-enter the long-term bear market, but that it’s likely.
This being the case, then the UK stock market may be a very poor home for your money. There may be another 10 years of secular bear market to contend with yet!
How to play a secular bear market
There are two ways to play a secular bear market. Number one, you don’t play it at all. You look for another market that’s enjoying a secular bull and put your money there.The second way, is to play the cyclical rallies. You get in just after a trough and then try to get out near its cyclical high. Of course, trying to time the market in this way is incredibly difficult…
So, ultimately, I favour the first method, especially since I reckon we’ve just hit the peak of this cyclical rally. This means looking for investments in other markets in a secular bull.
My colleague Simon Caufield plays ‘the long-game’ and only puts money into markets and investments that he believes are not only cheap, but are in a secular bull market too.
Now is exactly the time for this type of investing. Just look at the financial backdrop. How long until the financial crisis reasserts itself and the secular bear gets to work on Western equity markets again?
Simon’s approach is radical and leads him into markets that aren’t picked up by the mainstream investment community. That gives him an edge.
I’d really like you to take a look at Simon’s investment strategy and ideas, so I’ve organised for Simon to reveal ‘how he does it’ to the right side readers. On Thursday Simon says he’ll have a report ready for you, so make sure you don’t miss it when it lands in your inbox.
Good investing,
Bengt Saelensminde
For The Right Side
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