You End Up with More by Losing Less

Below is a 20-year chart of the Europe 600 stock index. In the top pane is RSI momentum indicator and in the bottom pane is the index price. Notice how the 400 level in the middle pane has so far acted as a market top three times. In 2000 and 2008 when price hit this level, it rolled over and began a waterfall decline, eventually losing almost 60% each time. Despite the good news that we are still above the blue uptrend line, even to the untrained eye this chart should raise concern. Is the top in for European stocks and will history repeat or will this time be different?  Armed with just this information, what do you think comes next?

Bay area investment advisor and retirement planning expert

Interestingly, European stocks are following an eerily similar path the US stock markets did, but offset by about 2 ½ years. The chart below is a look at the US stock market via the SP500 index from 1996 through April 2013.  Notice any similarities?

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In case you did not know how it all resolves, my next chart completes the entire historical perspective for the SP500 through last Friday’s close. We blew right through the upper resistance and sit some 30%+ higher today.

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If you add this information into the mix would you change your opinion to the question I asked above? I think a strong case for either a bullish or bearish outcome can be made for European stocks right here. This "crossroad" is no different than what investors face every day. So, what’s an investor to do? Investment markets can and will do anything and the most probable outcome will be that which frustrates and loses money for the majority. Having a predetermined bias of what will happen can have a negative impact on your investment account. The markets don't care what we think or believe. Through the school of Hard Knocks, I have learned the most successful approach to the markets is to have a process that invests with the prevailing trend but is flexible enough to recognize when it is wrong. Being wrong is normal and expected as we are human. Staying wrong is not when it comes to your money. Over the long term, you end up with more by losing less.