The Market Is Always Right?

“The Market is always right.”

One of the most popular sayings in markets and also one of the most dangerous for investors. Why? Because the “market” can be very, very wrong – often at the worst possible time.

A few examples in history when we were told: “the Market is always right.”

1) Nikkei peak in December 1989. A 79% decline would follow. Over 26 years later, it is still 44% below that peak.

2) S&P Tech Sector peak in March 2000. An 82% decline would follow. Over 15 years later: still 25% below that peak.

3) The peak in US Home Prices in July 2006. They had doubled since 2000. Over the next six years they would fall 35%. Today, ten years later, prices are still 12% below the 2006 peak.

4) Athens Stock Exchange Index (Greece) in November 2007. It had quadrupled in the previous four years. Today: 89% below that peak.

5) Silver in January 1980. It had increased by over 1000% in the previous three years. Less than two years later it lost 90% of its value. Today: 70% below the 1980 peak.

6) High Yield Bonds in December 2008. They were yielding over 22%, pricing in another Great Depression. Less than a year later, they had recouped all of their losses.

7) From 1991 through 1997, Apple Computer dropped 80%. It did so again from 2000 through 2003. Then, from the 2003 low, it advanced over 14,000%. $1 in 2003 was worth $150 in mid 2015.

8) Interest Rates in 1981. Mortgages were above 18% while 30-year Treasury Bonds yielded more than 15%. Over the next 35 years, rates would fall.

9) Arch Coal in early 2011. Over the next four years, the equity and bondholders would lose over 99% of their value. The company filed for bankruptcy in January of this year.

10) Fed Funds Futures, any year since 2009. The market has become obsessed with these market expectations for Federal Reserve Policy. Their accuracy? In 2009-11, they were anticipating rate hikes off of 0% in each of those years. The Fed did not hike until December 2015. The predicted path from 2012-15 has proven to be overly hawkish as well. Today the market is not projecting a hike until 2018.