Path: bloom-picayune.mit.edu!snorkelwacker.mit.edu!news.media.mit.edu!americast.com!americast.com!usa-post Newsgroups: usa-today.bonus From: usa-post@AmeriCast.Com Organization: American Cybercasting Approved: usa-post@AmeriCast.com Subject: bonus Thu, Aug 13 1992 Date: Thu, 13 Aug 92 05:17:49 EDT Message-ID: 08-13 0000 BONUS: A look at the bull market USA TODAY Update Aug. 13, 1992 Source: USA TODAY:Gannett National Information Network Chances are that you wouldn't have bought a stock from your own mother 10 years ago. Runaway inflation had made stars of things like gold, farmland and money funds. Nobody wanted stocks. They hadn't had a decent rally in seven years. HAVE THINGS CHANGED? The past 10 years have more than made up for lean times through the 1970s. Aug. 13, 1982, 10 years ago Thursday, was the first day of a great bull market. It started amid widespread despair over stocks' prospects, serving up one of the great investing lessons of the past decade: When it seems the world is giving up on something, opportunity isn't just knocking - it's breaking down the door. WHAT WAS LEARNED FROM THE BULL MARKET? Diversify. Invest for the long term. Don't chase fad stocks. Never buy a stock on a hot tip, at least not without checking it out. And often - maybe even most of the time - the bad guys get caught. The bull market gave us more than a set of rules to invest by. It gave us an image by which to remember the glitzy, debt-fueled years, when Harvard MBAs started at six-figure salaries and limousines lined streets in front of New York investment banks, waiting for dozens of Gordon Gekkos. WHO GOT INTO THE ACT? The run-up in stocks caught everyone's attention, pushing onto the front page of local newspapers. And as stocks rose, people across the country acquired a feeling of wealth. Baby boomers came of age in that environment, which seemed as if it would never end. "The bull market reinforced our historical American optimism that things will always get better," says Alan Bromberg, professor of corporate law at Southern Methodist University. WHEN DID THE BULL MARKET REALLY BEGIN? It's arguable that the bull market that started in 1982 is all part of the same runup investors have enjoyed through this year. The bull tired in 1984 - it even collapsed in 1987. Many left it for dead in 1990. But none of those pullbacks was a true bear market, experts say. Since August 1982, the Dow has quadrupled - rising from 777 to 3321. HAVE THERE BEEN MAJOR SLUMPS? The steepest decline came in 1987, when the Dow fell 23% in one day. It bounced back quickly and ended the year a bit higher than where it started. The longest decline came in 1990, from mid-July to mid-October, when the Dow fell 21%. But within months, all that ground had been regained. Compare those now-painless pullbacks with the Tokyo stock market, which is down more than 60% in a steady grind that began at the start of 1990. That's a bear market. IS THE BULL MARKET HERE TO STAY? No. Stock prices today are so high, they reflect earnings growth that may be unachievable in the low-inflation, low-growth years economists say lie ahead. On average, stock prices now are 18 times expected per-share earnings. When the bull market began, that figure was eight. If earnings can't catch up, stocks must come down. "Investors should lower their sights," says Bob Nurock, who edits Bob Nurock's Advisory in Paoli, Pa. WHAT DO STOCKS USUALLY RETURN? Historically, stocks have posted average annual returns of 10%. That benchmark will hold over a period of decades, Nurock says. Since 1982, the average annual return of stocks, including reinvested dividends, has been 19%. Nurock predicts average annual gains of 5% or 6% the rest of the '90s. That would offset the last decade's huge gains and bring the historical return of stocks back into whack. ARE THERE ANY OTHER BIG CONCERNS? Some fundamental forces behind the 1980s bull market are missing now. Gone is the easy money from junk bonds that let anyone with ties to Michael Milken bid for a company and either take it over or drive it into the hands of a higher bidder. In its mid-'80s heyday, takeover mania often doubled the price of a target company's stock, enriching shareholders and fueling speculative buying in stocks of all sorts of companies that appeared ready for takeover. WHAT ABOUT SUPPLY AND DEMAND? Gone is the critical formula of shrinking supply in the face of growing demand. During the last part of the 1980s, billions of dollars in stock were taken out of the market via takeovers or corporate stock buybacks. Last year, that trend reversed as a record 367 companies sold $16.4 billion worth of stock to the public for the first time. The flood of stock offerings has continued this year. ARE THERE ANY POSITIVE FORCES REMAINING? The single biggest catalyst to higher stocks in the '80s remains, notes Bill LeFevre, market strategist at Tucker Anthony. That is falling interest rates. In 1982, the Treasury's 30-year bond yield was 13.4%. Today, it is 7.32% and appears headed lower. Falling rates lower the cost of borrowing for companies, which makes it easier for them to expand and become more profitable. And as rates fall, investors look away from things like bonds and bank certificates of deposit to stocks for higher returns. WILL BABY BOOMERS CONTINUE TO FUEL THE MARKET? Another catalyst for stocks is 78 million baby boomers. As they enter their peak earning years in the '90s and beyond, they'll become peak investors. They have the potential to drive the market the way they drive everything they get behind. HOW PROFITABLE HAS THE BULL MARKET BEEN? If you had flouted conventional wisdom in August 1982 and invested $10,000 in stocks, it would be worth more than $59,000 today - assuming you'd reinvested all your dividends. Some investments have produced greater wealth in shorter periods, many during the 1980s. You may have doubled your money in a year on a house, a painting or even a baseball card. But over the long haul, none of those combine stocks' high returns, relative stability and ease of buying and selling - traits individual investors value. WHAT ARE THE HALLMARKS OF THE BULL MARKET? It redefined investing for the masses. Individuals flocked to mutual funds as they watched the market go higher but felt ill-equipped to match wits with professionals. In a mutual fund, they were diversified and had a pro on their side. In 1982, stock and bond mutual funds totaled 721 and had assets of $254 billion. Today, funds number 3,923 and have assets of $1.5 trillion, according to Lipper Analytical Services. There are more mutual funds than stocks that trade on the New York Stock Exchange. WHAT WERE THE SYMBOLS OF THE BULL MARKET? The press attention made household names of Wall Street's villains: Market manipulators Milken, Ivan Boesky, Dennis Levine. Their crimes symbolized excesses of the greed decade and all that is wrong with the unfettered pursuit of wealth. Yet, their winding up in jail near the end of the 1980s restored a measure of confidence in the markets and somehow seemed a fitting prelude to the cautious 1990s. Bonus Editor: Ed Kelleher. (1-919-855-3491) Making copies of USA TODAY Update (Copyright, 1992) for further distribution violates federal law. This article is copyright 1992 Gannett News Service. Redistribution to other sites is not permitted except by arrangement with American Cybercasting Corporation. For more information, send-email to usa@AmeriCast.COM