How to Make More Money in Stocks
Than Anyone You Know
By Dr. Steve Sjuggerud
February 20, 2008
"Didn't you hear, Steve? Consumer confidence is at its lowest level in 16 years. We're never gonna get out of this thing..."
I love it! When I heard someone say that this week, I KNEW that we were getting closer to a bottom in stocks.
Now, you may not believe me if you follow the evening news: "Consumer confidence plunged, causing the stock market to fall..." It sounds plausible. But don't pay any attention to that. Here's what you need to know...
The worse consumer confidence is now, chances are, the more money you'll make in the stock market in the coming years. And the higher consumer confidence is, the LESS money you'll make in stocks in the coming years...
Don't believe me?
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The stock market has peaked twice in the last two generations... in the late 1960s and the late 1990s. Consumer confidence has also peaked twice in the last two generations. Guess when... The exact same times – the late 1960s and the late 1990s.
Similarly, consumer confidence bottomed out three times: In early 1975, in 1980, and in 1990. The stock market took its cues again... It bottomed around those times in all three cases.
The most recent two times we've seen very low consumer confidence – the early 1980s and the early 1990s – were absolutely incredible times to buy stocks... The best two times to buy stocks in our generation!
Take a look:
When People Are Worried, Buy Stocks!
For some reason, people don't want to believe this. But you can see it in the chart. The relationship is not perfect, of course. Measuring human emotion is hardly an exact science. From my experience, consumer confidence as an indicator works like this:
When consumer confidence gets hot, it's a warning sign for the markets... It doesn't mean "Sell now!" It just means "Be wary," because we're likely closer to the end than the beginning of a big run higher.
Similarly when consumer confidence is low, as it is now, it doesn't mean "Buy with all you've got." It means "Get ready," because we could be getting close to the beginning of a big run higher.
As the chart shows, it's hard to tell when you're at the bottom based on consumer confidence data alone. Even worse, the data bounces around a bit.
So I look at consumer confidence numbers in the very big picture... Are we closer to a major peak (like the late 1960s and the late 1990s)? Or are we closer to a major low (like the early 1980s)?
Right now, it looks like we're closer to a major low in stocks than a major peak. But the thing is, we might not be at that low yet... So don't go out and rush into stocks based on this data alone.
The bigger point I want you to understand is this: In order to make more money in stocks than anyone you know, and in order to catch the major trends, you've got to be willing to buy stocks when nobody else is willing to... and you've got to be willing to sell when everyone else thinks nothing can go wrong.
Consumer confidence indexes are a rough way of gauging this. They're not perfect. But right now, they're telling us that people are more scared than they've been in 16 years...
If you'd bought stocks when people were this scared 16 years ago (as we came out of the last recession), you'd have done very well...
So remember, you might hear on the news that "stocks were down because consumer confidence was down..." Now you know the real story... When consumer confidence is as low as it is now, you're actually closer to a rally than a plunge.
Good investing,
Steve
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