With 2012 having been a surprisingly good year for stocks, many investors are taking money off the table as 2013 begins, thinking the market has gotten ahead of itself. If that’s your rationale for selling stocks, think again, says Mark Hulbert.
“Should you celebrate your unexpected good fortune by taking money off the table?” Hulbert writes in a recent MarketWatch column. “This response is striking many as particularly compelling, not only because of the enormous uncertainty the world faces in 2013 and beyond but also because 2012 represents the third year of the last four in which the stock market produced well-above-average returns. And while I don’t necessarily disagree with that response, it’s worth keeping in mind that, if we take a very long perspective, the stock market deserves many more good years just to get back to its historical average.”
Hulbert refers to the data of Wharton Professor and Stocks for the Long Run author Jeremy Siegel, who in his book found that the stock market has averaged annual real returns of 6.9% over more than two centuries. Based on that 6.9% figure, stocks ended 2012 trading 27% below their long-term trend line, Hulbert says.
Hulbert says that doesn’t mean stocks are going to quickly catch up to their long-term trend line, or that they will in fact catch up to that line. But he thinks the data is worth considering. “Bear all this in mind in coming days, therefore, as you read those year-end reviews that stress that stocks have gotten far ahead of themselves,” he writes. “From the longest-term perspective of all, stocks still have a considerable way to go just to catch up.”