With the stock market in the longest bull run in history and the highest valuations in history, one must wonder how long this current trend will go on and plan accordingly. Ted Bauman is an economist who understands the financial markets and focuses on a more defensive approach rather than an aggressive approach to managing one’s assets. Ted Bauman received his education from the University of Cape Town in South Africa. He spent over twenty years taking a leadership role in charities and housing assignments for the poor. He has experience working for the World Bank and has performed research for the United Nations. He currently specializes in wealth preservation and low-risk investing for the long-term.
Ted Bauman mentions that even with record high valuations, there could potentially be a significant sell-off in equities, followed by an immediate bounce back, resulting in stock gains for investors who are brave enough to hold on to their securities and not panic during the major selling. Mr. Bauman brings up the famous Black Monday incident that occurred in 1987 when the stock market experienced one of the largest one-day declines. Most investors were spooked and sold all their positions. The smart investors saw a buying opportunity and purchased shares that were much cheaper. The investors who sat back and held their shares without panicking and the investors who bought in cheaper enjoyed a ten percent rate of return by the end of the year.
Ted Bauman also points out that current stock valuations are at extremes and it may be time for them to return to the mean. Equities may drop, but it could take as long as a year for the whole process to play out. Once there is a shift in market mentality, investors will no longer have the appetite for the risk, especially with current valuations. Ted Bauman believes that the Federal Reserve will remain on its current course of action and raise interest rates. He advises investors not to try to time this, but he said that the rise in interest rates should weigh down on the stock market.