Here is a scan of the top half of yesterday's front page of The Wall Street Journal. The headline highlights "optimists" who say that this bull market has legs, i.e. that it will go on for several more years and carry prices much higher than they are now.
Some of you are wondering whether this is the proverbial "kiss of death" for the bull market which started in 2002.
My own view is that this headline is unusual and does not reflect the current state of market sentiment. Reasonable people can differ with my assessment of course. But based on 40 years of applying contrary opinion analysis to the markets I think I would have to see many more articles in the same spirit as this one before I could conclude that public sentiment about the stock market's long term prospects is bullish.
Nobel Laureate Vernon Smith makes an important point in this story. He observes that in his experiments and in his analysis of past bubbles, "...once investors inflate a bubble [as they did in 1999] and endure a crash [2000-2002], they are unlikely to repeat this mistake until memories fade. " A lot more novices have to get interested in stock market investing before a new bubble can inflate. This process generally takes about a generation (20 or so years) to complete.
I entirely concur with his views. After the 2000-2002 bear market I thought that stock prices would remain essentially flat for 10-15 years as they did during the 1966-1982 era. But as prices rallied from their 2002 bear market lows it became apparent to me that the people who were hurt by the 2000-2002 crash were staying out of the market entirely or were hoping for a repeat so that they could avoid it and then buy at the bottom.
Partly for this reason I have completely reversed my very long term views about the market. I now think that the 2002 low was the start of a bull market that will probably carry on at least 15-20 years and multiply the averages several times. The next 15 years will be very much like the 1982-2000 and 1949-1966 episodes in US stock market history. Of course during this mega upmove there will be the occasional 20-30% drop in the averages. In fact I suspect we will see such a drop from a top made sometime this year. But every such drop will be a huge buying opportunity.
My opinion is that, if you are an investor who has to make only one asset allocation decision now, you should put all your money into the US stock market. Then throw away the account statements you get for the next 15 years and do something productive with your life. At the end of this time I think you will find yourself much weathier than you ever imagined possible and will have done far better in the markets than most people who pride themselves on their market smarts!!!