Are you worried yet?
Does the fact that we came roaring off the market bottom bother you?
Does the severe recession we've been in, with its banking crisis, government takeover of companies, and double-digit unemployment, make you think that this time, it really is different?
John Mauldin believes it is. In a column written last June, he outlined several reasons why he thinks we will reset to a "new normal," one that involves lower consumer spending and a longer-than-usual recovery.
He could be right. Japan's economy, held up by many as an example of what we might be headed toward, has gone essentially nowhere for many years. The Nikkei index is actually down, a lot, over the past 10 and 20 years. More than 50% and 73%, respectively, in case you're interested.
However ... I have a fundamental problem with arguments pinned upon the phrase: "This time it's different."
How it's been "different"
A decade ago, people were using that phrase to justify investing in Internet companies without earnings. Luckily, I stayed away from those, but I did buy shares of Cisco and Intel, believing their hypergrowth stories would hold true. Others bought Oracle
Over the past few years, we watched housing prices go up and up and up. Models used by companies like US Bancorp
One more. Before the crash in commodity prices in mid-2008, we were told that the place to invest was in commodity companies: copper producers such as Southern Copper
Do you notice a pattern here? Each time investors believed that phrase, they got burned. And there's no reason to believe that the same won't hold true going forward.
According to Robert Arnott, chairman of the asset management firm Research Affiliates, "The words 'This time it's different' are always a little alarming because they are used to justify poor investment choices."
The late Sir John Templeton called them "the four most expensive words in the English language." And he should know: He lived through, and invested during, a lot of periods that could be called "different."
Plus ca change, plus c'est la meme chose
Sure, the Japanese market has been a basketcase over a long period. But does that mean every company was terrible? Honda, for instance, is up more than 660% over the past 20 years. And that's neither an obscure company, nor the only example.
My colleague Ilan Moscovitz pointed out that since the last recession, an investment in Apple has returned more than 1,000% to investors, while one in Southwestern Energy
Mauldin could be right. Maybe this time it really is different. But as those examples show you, if you stop investing, you miss out on chances like these. Our job as investors is to try to find companies that perform well and that we can feel comfortable investing in.
One such, a recommendation of Motley Fool Stock Advisor, is Amazon.com. It started out as an online bookseller, but has since branched out into music, movies, even kids' clothing. Its solid balance sheet, ability to generate tons of free cash flow, and money-saving offers for cash-strapped consumers make it an investment worth considering, regardless of whether "it's different this time."
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This article was originally published Oct. 9, 2009. It has been updated.
Jim Mueller owns shares of Apple and Southern Copper, but none of the others mentioned. Intel is an Inside Value pick. Apple and Amazon.com are Stock Advisorrecommendations. Motley Fool Options has recommended buying calls on Intel. The Fool owns shares of Oracle. The Fool's disclosure policy is probably no different from the last time you read it, but you might want to check.