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This Was Never Easy

By Morgan Housel - Apr 28, 2015 at 4:10PM

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Don't kid yourself. Good investing hurts.

Barron's, Nov. 2009: "The Easy Money's Been Made"

Morningstar, Dec. 2010: "The Easy Money Has been Made"

MarketWatch, Nov. 2011: "The easy money has already been made"

TheStreet, May 2012: "The Easy Money Has Been Made"

Morningstar, Dec. 2013: "The Easy Money Has Been Made"

Barron's, Oct. 2014: "The Easy Money Has Been Made"

CNBC, March 2015: "The easy Money has been made"

People say a lot of stupid things in finance. "The easy money has been made" is near the top of the list. 

The saying gives the impression that past market gains were obviously going to occur and required little skill or foresight. But going forward, well, now you've got to be a sharp-eyed tactical investor to make any money.

It's all nonsense, hindsight bias colliding with an illusion of foresight. 

Stocks have surged since March 2009. It's been one of the strongest six-year rallies in history. But if you think any of that was perfectly foreseeable, or easy, you are utterly kidding yourself.

None of this was ever easy, which is verified by the fact that people have been saying "the easy money has been made" consistently since this bull market began six years ago

At every step during the last six years there has been a persuasive argument that stocks had gone too far, were getting ahead of themselves, and bound to fall. 

2009: Economy teetering on a second Great Depression.  

2010: Europe debt crisis, flash crash, corporate earnings too high, hyperinflation pounding at the door, CAPE valuation ratios make stocks look wildly overvalued. 

2011: Arab Spring, oil prices surge 25%, double-dip recession looms, end of quantitative easing, Obamacare generates some of the most doom-laden headlines ever printed, America's credit downgraded.

2012: Greece falling apart and taking Europe with it, corporate profits stretched, Bernanke ruining the dollar, taxes going up, weak jobs growth meant an entire generation would be left behind, election headlines destroyed your faith in humanity. 

2013: Cyprus's banking system collapsed, American banks sued for all they were worth, federal government shuts down, debt-ceiling showdown risks U.S. debt default. 

2014: End of quantitative easing, China's economy slows, Ebola, stock hit all-time highs. 

You can take this back as far as you want. Every year without exception there is a reason to worry and sell stocks.

The common stories people cite today for why stocks will do poorly going forward are 1) valuations are high, 2) corporate profits are bound to fall, and 3) interest rates are going to rise. All are valid points, but people have been saying the same thing for years.

Financial Times, Oct. 2009: "The US stock market is overvalued by 40%"

Business Insider, April 2013: "Profit Margins Will Collapse, Stocks Will Tank"

New York Times, June 2009: "Shares slide on interest rate concerns"

None of these points should be criticized. Most were made by smart people thinking rationally at the time. But they're a reminder that things have never been easy over the last six years. The future was just as scary back then as it is today. 

Only in hindsight do things look so obvious, like, "Duh, of course stocks were easy money in 2009. They were super cheap and the U.S. economy was entering a multiyear recovery." 

But how many people actually believed that in 2009? Not many. Take some of the top-selling books that year: 

The Great Depression Ahead: How to Prosper in the Crash Following the Greatest Boom in History 

House of Cards: A Tale of Hubris and Wretched Excess on Wall Street 

Meltdown: A Free-Market Look at Why the Stock Market Collapsed, the Economy Tanked, and Government Bailouts Will Make Things Worse 

Suze Orman's 2009 Action Plan: Keeping Your Money Safe & Sound 

End the Fed 

None of these books screamed, "The stock market is easy money right now!" Quite the opposite. 

The reason you make money in stocks is because you're willing to hold assets where the future is unknown, bad things can happen, and outcomes are uncertain. There is never -- ever -- such thing as "easy money." There are only hindsight perceptions, and those perceptions are twisted by time, rewritten in our heads as memories of something they weren't

Here are three takeaways.

1. Unsustainable things can last for years longer than you think. Some investors think the easy money is behind us because, say, valuations can't possibly go any higher, or profits can't possibly keep growing. Of course they can. The entire history of economics is a drunken ride of unsustainable booms and busts. We come up with a statistical "average" of where things should eventually revert to, but the economy and the stock market rarely spend any time near average. They are almost always doing something they shouldn't be.

"It's different this time" are not the most dangerous words in investing. "I'll invest when things are back to normal" are far worse.

2. Good investing hurts. Investors pay a high price for comfort and get paid a high price for doing what few others will. That will always be the case. 

3. The future is as uncertain as the past is obvious, but it's so easy to convince yourself of the opposite. 

Fore more on this topic:


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