I don’t believe that anyone can predict what the stock market will do over the very short term. It’s just too difficult to time it. On occasion it slumps or crashes, but in the fullness of time it goes up. In fact, calamities are rare, and the upside vastly outweighs the downside. Since the end of World War ll, 50% crashes have occurred only 3 times. That’s one out of every 26 years. In this connection, having a negative bias against the market is not only a costly affair, but also a very low-probability bet because there is a long-term tendency for the US economy to generate a lot of free-cash-flow for US large-cap corporations. According to Julius Baer, corporate free-cash-flow as a percentage of N-GDP rose from 5% in 1982 to 20% in 2020. Aside from the pandemic experience, this phenomenon has been going on for a very long time, which may explain why the stock market tends to produce positive returns.
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By Hubert Marleau
By Hubert Marleau