2/19/2017 There is nothing normal about a perfectly "normal" market

Sector Model	XLU	2.51%
Full Model	Date	Return	Days
BT	8/11/2015	-42.43%	558
DY	10/30/2015	5.05%	478
TMK	11/23/2015	28.87%	454
UPLMQ	12/1/2015	93.27%	446
NVR	12/16/2015	14.33%	431
CMP	2/19/2016	15.28%	366
NVR	2/22/2016	19.15%	363
ENOC	3/15/2016	-18.03%	341
AMWD	3/17/2016	13.75%	339
CASY	5/12/2016	3.26%	283
AVB	5/24/2016	1.37%	271
AEM	6/7/2016	-6.45%	257
ESRX	6/13/2016	-7.83%	251
AMED	6/16/2016	-4.84%	248
FRO	6/27/2016	-8.79%	237
ASTE	7/12/2016	20.17%	222
MFC	9/1/2016	41.12%	171
SFM	9/8/2016	-2.85%	164
CFFN	9/12/2016	11.59%	160
FIG	12/6/2016	57.28%	75
(Since 5/31/2011)
S&P	Annualized	10.24%
Sector Model	Annualized	16.03%
Full Model	Annualized	13.27%
S&P	Total	74.78%
Sector Model	Total	134.24%
Full Model	Total	104.06%
Sector Model	Advantage	5.79%
Full Model	Advantage	3.02%
	Previous	2017
S&P	66.43%	5.02%
Sector Model	120.54%	6.21%
Full Model	91.27%	6.69%

I mentioned a few days ago that the market was stuck in a parking lot.  My sector model is resting on its long term regression line, and the S&P is doing the same.

Perfectly normal, right?

Well, no.  It’s actually NOT normal for the market to be resting exactly on its long term regression line.  The problem is that no one is confident which direction the market should go in. 

On Friday the S&P closed at 2351.16.  The long term regression line is at 2298.  That’s extremely close.

One standard deviation above is 2947.  It would be “normal” for an optimistic market to be there.

What about a pessimistic market?  Well a “normal” pessimistic market would be 1767.

Just for fun I drew two standard deviations above and below, which are 3812 and 1369, respectively.  68% of the time the market should be between those!

And what are we to learn from all of this?

ALMOST nothing.  Look at those lines again.  They say nothing meaningful for investors except for the one thing they have in common: they go up.

The market goes up and down and wriggles all around at dizzying heights and pits of despair, but those investors who save in an index fund or long term investments will tend to gain over time.  To MAKE money in the market, SAVE money in the market – not by trying to avoid loss, but rather by consistently adding to your retirement account.  What about gold or bonds or stocks?  Stocks have better long term returns, but they all eventually go up.  Save early and invest long.  If it’s not enough then learn to live on less so you can save more – because if you don’t do that you’ll have to learn to live off nothing when the savings are all spent.

Are you absolutely guaranteed to live well if you save well and invest long?  Of course not.  But you ARE guaranteed to do even worse if you save poorly and invest late.

Tim