This week brought new evidence, not necessarily that the stock market efficiently allocates capital to its most productive use, but that it effectively separates fools from their money. The fool gives…Wall Street takes away. In other words, the house always wins.
“Patience and fortitude conquer all things,” said Ralph Waldo Emerson. Clearly, he could not have imagined the current bear market, which commenced with the opening of the new millennium. Nonetheless, Emerson’s ultimately right, patience and fortitude will prevail. But what good is it if, by the time they do, your retirement account’s ravaged and the money you’ve saved to cover your kids college tuition runs out one semester into their sophomore year?
Bear markets bring clarity to the world. Without the current bear market, for instance, one of the wonderful dogmas of the 1980s and 90s bull market would not have been exposed to be a farce. What we are talking about is the great Wall Street myth that you can retire a millionaire and enjoy an extended life of leisure by buying and holding an index mutual fund.
In the year 2000, everyone knew this was true. In the year 2011, everyone knows this is a crock. Continue reading







