Successful physician-investors need an active money management methodology to be able to thrive in secular bull marketsâ€”markets in which most stocks go up in price. Since 1900, there have been three secular bull markets and three secular bear markets.
Secular bear markets feature huge drops, lots of movement, and basically end up almost flat in price. Secular bear markets help to digest the gains of the prior secular bull market, and sow the seeds for new stock leadership in the next secular bull market. On average, stock mutual funds, which mirror the overall market, do not gain much for their investors during secular bear markets, and active money management is key.
The secular bear markets of 1906-1921, 1929-1949, and 1966-1982 featured average annual returns of only 1% to 2%. The secular bull markets of 1922-1928, 1950-1965, and 1982-2000 featured average annual returns of 10% to 20%. The average length of the previous three secular bear markets was 18 years, with a minimum of 16 years and a maximum of 21 years. However, even in a secular bear market there are still cyclical bull markets lasting a year or more. The way to make money in those times is through selective stock picking.
A stock investment methodology such as CANSLIMâ„¢, which selects stocks showing the right fundamental characteristics (ie, rapidly accelerating sales and earnings growth, high return on equity, high profit margins, etc) as well as the right technical characteristics and is in tune with the moves of the overall market, is the best strategy to follow in both secular bull and bear markets. Cutting losses short, proper money management, and the need for the right trading psychology are essential elements for success.
Whether you're a physician who invests on your own, or through a stock broker or money manager, be sure to keep in mind the importance of buying and selling growth stocks correctly, and follow a well-planned investing discipline like CANSLIMâ„¢, instead of buying and holding a mutual fund.
Michael Doran is a private money manager
affiliated with Sierra Capital Planning in
northern California. He runs a fee-based
business and a hedge fund for qualified investors.
For more information, call 877-467-8657 or visit www.sierrainvestor.com. Avanish Agrawal
contributed to this article.