Good morning.

I was away last week, but we shouldn't let an important milestone go by unnoticed. Aug. 12 was the 40th anniversary of the beginning of the great bull market of the 1980s.

On Aug. 12, 1982, the stagflationary bear market that had lasted almost without interruption from early 1966 through the 1970s and early 1980s finally came to an end.

The S&P 500, which had stood at 94.06 on Feb. 9, 1966, closed at 102.42 on Aug. 12, 1982 -- a cumulative gain of 8.9% over more than 16 years. 

No, that doesn't count dividends, but it doesn't count inflation either! Here's what returns looked like, including dividends and accounting for inflation:

Over the next five years, the S&P 500 more than tripled. After brief pauses for the Crash of 1987 and the short recession of late 1990, it quintupled in the 1990s.

A grueling bear market ultimately led to some of the best results for investors in history.

I see two lessons here.

First, as I like to say, in markets, hindsight is 20/20 but foresight is legally blind. Turning points for investors seem ridiculously obvious in hindsight -- but in real time they are often almost impossible to spot.

To see what I mean, look at the FedEx logo.

Many people know there's something embedded in there other than the letters F, e, d, E and x. But not everybody does. Either you see it instantly, or you can't find it at all.

If we zero in on just one part of the logo, though, everybody can see what formerly may have been hidden:

Now try something else. Look at the full FedEx logo again and try to unsee that arrow. Try to reconstruct your state of ignorance before you knew the arrow was there.

Is it possible to look at the logo and see only the letters, without the arrow?

In much the same way, once we know the stock market reached a turning point in the past, it becomes inconceivable that anybody would have been unable to notice it at the time.

But, in real time, that isn't how real life works for investors. Even the most epic turning points are enshrouded in fog.

On Aug. 12, 1982, interest rates were still so high that bonds and cash offered jumbo returns:

A major brokerage firm filed for bankruptcy protection on Aug. 12. It was the dog days of August on Wall Street:

Among portfolio managers and analysts, the only glimmer of hope was that things should get even worse once investors finally gave up on stocks entirely:

But that "selling climax" and "outright capitulation" never came.

Stocks don't have to get cheap in a sudden apocalypse. They can get cheap in dribs and drabs, in years or even decades of water torture. And then they can change direction as sharply as the snap of a whip.

According to data from Yale University economist Robert Shiller, in August 1982 the S&P 500 was trading at 6.6 times its long-term inflation-adjusted earnings (what he calls the CAPE ratio).

Today that ratio is about 29 times -- meaning that stocks are more than four times more expensive today than they were 40 years ago.

That squares roughly with this comparison from Doug Ramsey, chief investment officer at the Leuthold Group in Minneapolis:

So the second lesson is that 2022 is nothing like 1982.

Even after the extreme losses of early 2022, stocks are nowhere near cheap. Patient buyers who add to their holdings steadily over time will probably be fine. But anyone who rushes to buy at these valuations is likely to be sorry.

Suddenly, market commentators are buzzing that FOMO is back. Fear of missing out on another rise in stocks is prompting many investors to jump back into the market and chase overpriced stocks all over again.

You don't have to join them. You don't lose money just because somebody else is making it. Someone else's risky gain is not your loss; sooner or later, it's likely to be theirs. They just don't know it yet.

On the history of the word cash, which I discussed here:
Regarding the words cash and coffer, you may need to go...a few hundred years earlier, to the ancient Greeks. The word coffer appears to have resulted from κόφινος (kofinos), which roughly translates to basket. Furthermore, the Greek counterpart to the Latin word capsa is κάσα or κάσσα, [denoting] a box to keep one's valuables, a casket, a heap, etc. In the Hellenistic era it even meant whore, and women used it to [insult] each other. It is certainly a term that has combined power, sex and death and gave rise to...numerous philosophical theories on the meaning of life.
--Savvas Ioannou, Larnaca, Cyprus

On the origins of the word fee in ancient terms for livestock:
Ironic how fee and free are so close yet so far apart.
--Bob Bruhl

Henceforth, I'll think of my mutual-fund expenses as livestock. I'm mostly in index funds, so the fees are more like chickens or rabbits than cattle. Your article reminded me of a graduate student from Africa who courted my wife (also a graduate student) before I met her. He...told my future wife that in his country she would be worth 20 head of cattle. She was not flattered.
--Mike Hennessy, Chicago

Recently, I wrote:
     I like to say that the problem with stocks is that they contain the letter T. If they were called socks instead, people would treat a 20% decline in price not as a selloff but as a sale.
     When socks get 20% cheaper, you don’t rush to get rid of the ones you already own; you check your sock drawer to see if you need a few more pairs. Young investors should treat stocks the same way.

...to which Jim Garrett responded:
Yep; bought some international sock indices yesterday...25% off summer sale!!

Be well and invest well,

Jason

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The handwriting was on the wall; it was just the ink that was invisible.
—Amos Tversky