There are bull markets, and there are bear markets. It is possible to for investors to accurately forecast these changes in the market cycle. To my knowledge no one has ever consistently or effectively predicted corrections in the market. I operate under the assumption it is impossible and attempting to do so will decrease the portfolio returns. Corrections are not the same thing as bear markets.

Saying all that, I will move on to what this post is really about. I recently ran into an all too common phrase I refer to as the “Mythical Right Time.” The phrase is any way of saying “that right now you do not feel it is a good idea to be in the stock market.”

I believe the “mythical right time” statement comes from a fear of volatility, even though volatility is normal as mentioned in prior posts. It also comes from a lack of understanding of market cycles. Lastly it comes from not being able to separate short-term assets from long-term assets.

An investor that thinks they will sit on the sidelines in cash and wait for the “right time” to get into stocks, may find themselves always sitting on the sidelines as the game is played.

Markets have been volatile and scary since they bottomed in October of 2009. During these volatile and scary times the S&P 500 has had an accumulative return of around 250%.

Being in the market all the time is vastly superior to being out of the market all of the time. The equities market has really bad days, months, quarters, and years; but over long-term periods it combines the greatest combination of returns and liquidity of any asset class.

Too often, people and bonehead politicians equate the stock market with the economy. They should not do this, the stock market does not equal the economy. Capital markets do not equal economies.

For instance in the United States, a large portion of GDP output and the majority of GDP growth is attributed to small businesses and other businesses that are not publicly traded.

GDP or Gross Domestic Product is one of the numerous measures of the economy

There is a relation between economic cycles and market cycles, but they certainly do not align perfectly. Recessions do not automatically lead to bear markets, bear markets do not automatically lead to recessions. The same can be said about bull markets and economic expansions.

The relative strength of the economy is very subjective, and therefore a perfect weapon for politicians and their rhetoric.

As investors we must be politically agnostic. Whatever our political ideology (I certainly have one) we must ignore it, and look at politics strictly in terms of “how it will move the markets over the next 12-18 months.”

We can vote, and hope for things that in the long-term will have a positive impact on the economy, and therefore have a positive impact on the future of the markets.

When we look out over the next 12-18 months at the political environment we can make one of two big assumptions. Either there will be change/action or there will be status quo.

With change and action comes uncertainty. The markets do not like uncertainty. Also with change and action the government effectively picks winners and losers. The markets react accordingly.

With gridlock, status quo, inaction, whatever you would like to call it comes a certain relief that is usually positive for the markets. When government is unable do get anything done or passed, there is little uncertainty about the more immediate future. Things will continue as they are. In the more short-term gridlock in Washington and governments around the world is typically a big positive for the markets.

My best attempt at a sports/government/market analogy to illustrate this point goes as follows.

The NFL and the referees in a football game are like government. Before the game you the investor bet on one team based on a certain set of rules and assumptions. Equate that to investing in the market in general, a sector, category or stocks, or a particular stock. Then at halftime you get word the NFL has decided to go back to early 1900s rules that do not allow for any forward passes. The government/NFL has completely changed the environment and your assumptions about the environment moving forward. You may decide that you want to change your bet given the new rules, or you may even decide to bet on a different game entirely based on this new information.