TEXT OF COMMENTARY
Scott Jagow: Even if you got burned during the recent market fallout, we’re supposed to take comfort in the fact that stocks rise over time. Commentator David Frum isn’t feeling that warm and fuzzy.
David Frum: A stock broker I know meets every market downturn the same way: He calls his clients and tells them in a big cheery voice: “We’re having a sale!”
And for two decades, smart clients have used downturns as buying opportunities. Perhaps your broker is telling you that right now. Probably he or she is right.
But let me share a private worry.
I’ve been buying stocks for my retirement plan for 20 years now. Most likely, I’ve got 20 years of buying still ahead of me.
Millions of baby boomers are doing the same thing, storing nuts for our winter decades. All these Boomers buying stocks at the same time has helped drive asset values to amazing heights since 1982.
Now here’s what bothers me: What happens when all these Boomers start selling at the same time?
I know, I know: stocks have returned an average of 8 percent year-in, year-out since the beginning of time. It’s just that I cannot help noticing that the beginning of time was not that long ago.
Large-scale public equity markets date back really less than a century. Almost one-third of that period coincides with the great baby boomer asset accumulation.
Almost another third was wracked by the 1920s Boom, the Great Depression and World War II. Before that, equity markets were remarkably susceptible to insider manipulation.
So we’re making all our generalizations about how markets behave over the long term on the basis of very rickety data sets.
What happens when the Boomers start consuming their winter stores? If today every market dip is a buying opportunity, will it be true two decades from now that every market rise becomes a selling opportunity?
Well, I’m still saving nuts for winter. But I cannot help wondering whether my nut-saving instincts are any more rational than that of the squirrel outside my window.
And again I worry: How hard do you suppose this coming winter is going to be?
Jagow: David Frum is a resident scholar at the American Enterprise Institute.
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