Market Direction and Stock Trends

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Portfolio Strategy and the Iron Laws
By John P. Hussman, Ph.D.

* February 6, 2017

The Iron Law of Equilibrium is that someone will have to hold these assets, at every point in time, until they are retired. Accordingly, there is no way for investors, in aggregate, to avoid present market risks, and there is no point in encouraging them to sell. What I do strongly encourage is that investors carefully assess their own investment horizon and risk tolerance, allowing for what we view as a strong potential for market losses similar to those we anticipated in 2000-2002 and 2007-2009. If you can accept rather weak long-term return prospects, and the risk of interim losses on the order of 50-60% in the S&P 500, do nothing and stick to your discipline. Otherwise, carefully examine your risk exposures and establish a portfolio that would allow you to maintain your discipline in the event these expectations are realized (whether you share these expectations or not). In any case, recognize that a static-allocation strategy quietly embeds an active component that automatically elevates risk exposure at rich valuations. This elevated risk is now coupled with the poorest long-term return prospects in history.

http://hussmanfunds.com/wmc/wmc170206.htm

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