As I write this book in February 2013, we have been through three years of one of the more difficult sideways markets in my experience, at least since the last long one in 1988–93, after the 1987 crash.
When the stock market is rising most people make money, at least on paper. Even monkeys have been known to be able to make successful stock selections in strongly rising markets. Wall Street has a cruel saying about investors mistaking a bull market for brains.
Most investors then end up riding the stocks that they bought in rising markets down again in falling markets. Although most investors do not much like them, falling stock markets should also be easy to deal with. They simply require the opposite strategy to rising markets. In a rising market the trick is to get in early and stay in. In falling markets, the reverse applies. Get out early and stay out.
However, there is a third market condition that really is difficult to deal with and can be quite treacherous. This is when markets churn sideways. One moment they are rallying and the next minute they are falling, taking away any recent gains. We will hear investors complaining about breakouts that fail, and about their bad luck. The truth is that many investors underestimate how much of the time stock markets and individual stocks spend essentially tracking sideways.
In sideways markets, another saying ...