Seven Golden Lessons Learned on Wall Street: An Editor’s Perspective After 40 Years

Mark Skousen

Named one of the "Top 20 Living Economists," Dr. Skousen is a professional economist, investment expert, university professor, and author of more than 25 books.
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“A sailor does not learn his trade by sailing on calm seas.” — Old mariner saying

This issue marks the 40th anniversary of my writing Forecasts & Strategies. During the past 40 years, I have written more than 500 issues and special reports with almost never missing a deadline; traveled to 50 states and 78 countries; lived offshore in the Bahamas and London; worked in Florida, New York and California; spoken at hundreds of investment conferences (going from the “blond-haired kid” to “senior statesman”); taught economics and finance at four universities, including Columbia Business School and Chapman University; served as a columnist for Forbes, Human Events, Reason magazine and Investment U; wrote more than 25 books; appeared on numerous television and radio programs, including Kudlow & Co. and Rick Santelli’s “Exchange” on CNBC; met with presidents, Fed chairmen and other political leaders; interviewed top investment gurus such as Warren Buffett, Jack Bogle, Kevin O’Leary and Charles Schwab; ran a successful mail-order business; spoken at hundreds of MoneyShows and other seminars; sponsored my own conferences, especially the highly successful FreedomFest; served as president of the oldest free-market think tank (the Foundation for Economic Education); had a business school named after me at Grantham University and received the inaugural Triple Crown in Economics from Steve Forbes.

At the same time, my wife and I raised five children and enjoy spending time with six grandchildren. Since entering the financial arena in the 1970s, I’ve been a firsthand witness to everything imaginable: bull and bear markets; high and low interest rates; easy and tight money; booms and busts; and the creation of revolutionary new products and services, including no-load funds, discount brokers, online trading and the internet. I’ve invested in stocks, bonds, options, futures, tax shelters, offshore bank accounts, gold, silver, commodities, art and even cattle. I’ve made money and I’ve lost money — fortunately, I’ve made a lot more than I’ve lost.

Five Decades of Boom and Bust

My financial career can be divided into five decades: (1) The Inflationary ‘70s; (2) The ‘80s Recovery; (3) The Booming 90s; (4) The Lost Decade of the 2000s; and (5) the Bull Run of the Teens. The first issue of Forecasts & Strategies (a name chosen by Eagle Financial Publications founder Tom Phillips) was launched as Ronald Reagan was elected in 1980, which became a sea change year.

Prior to Reagan’s election, the United States faced its first energy crisis and an inflationary recession, called stagflation. In the “Inflationary ‘70s,” a financial revolution developed, where investors largely

ignored the traditional markets of stocks and bonds, speculating instead in real estate and the

triumvirate of “gold, silver and Swiss francs.”

My first investment in the early 1970s was not a stock, bond or mutual fund, but a silver dollar, after reading Harry Browne’s bestseller, “You Can Profit from a Monetary Crisis. I always keep a silver dollar in my pocket — never forget your roots!

As the Dow chart to the right will show you, the stock market went virtually nowhere for 15 years between 1965 and 1980.

‘The Financial Shock of 1981’

Then Reagan was elected, and the economic environment changed. Instead of fighting recession, the Fed, under the direction of Paul Volcker (who died last month at the age of 92), started fighting inflation. Reaganomics was born, with Reagan’s plan to cut taxes, deregulate, control spending and stop inflation. Nevertheless, many investors remained married to hard money and hard currencies.

In the first year of my newsletter, I tried my hand at writing promotional copy. The outside envelope of the direct marketing piece read: “The Financial Shock of 1981. You opened the envelope and the headline read: “Reaganomics will work! Sell your gold and silver and buy stocks and bonds!”

My promotion failed miserably, simply because nobody believed it. The stock market had languished too long, and gold and silver were all the rage. But it proved to be prescient, as we were in the beginning of an unprecedented boom and bull market on Wall Street that has lasted almost four decades. The promotion may have failed, but the forecasts and strategies prevailed.

I’ve had a loyal following ever since.

What are the seven lessons I’ve learned?

LESSON #1: Government policy can greatly affect your investment portfolio, for good or ill.

Look at the Dow chart from 1935 to 2020 below. We see three periods when the stock market remained flat or fell, and all three occurred during times of heavy government intervention: 1. 1930-45, a 15-year period of Great Depression caused by a defective Federal Reserve policy and World War II, which led to high government spending and regulation; 2. 1965-1980, a 15-year period of the Vietnam War and uncontrolled inflation, again, caused by deficit spending and the Fed’s easy money policy; 3. 2000-2009, a 10-year period characterized by the war against Islamic terrorism, deficit spending and an inflationary boom-bust cycle, including the dot-com collapse and the real estate crisis.

Forty Years of Mostly Good News

Fortunately, the news has not always been negative. In fact, for the first 40 years of Forecasts & Strategies, we enjoyed incredible economic growth, a whole new world of revolutionary technology and mostly bull markets on Wall Street.

Between 1980 and 2020, the bond market has increased 15-fold, and the stock market, as measured by the S&P 500 Index, has increased 50-fold, counting dividends. While stocks and bonds rallied sharply, alternative investments in gold, silver, oil and other commodities have floundered.

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The 1987 Stock Market Crash

A crash on Wall Street occurred on October 19, 1987, which happened to be my 40th birthday. The Dow fell 22.5% on that Black Monday!

I had anticipated the crash six weeks earlier in a special alert to subscribers with the headline, “Sell All Stocks. It turned out to be my most famous forecast. Fortunately, the crash turned out to be a temporary glitch in a long-term uptrend, and we eventually got back into the markets.

I haven’t predicted a stock market crash since then, because after the 1987 collapse, the federal government created a “plunge protection team” and circuit breakers to intervene in the markets and keep them from collapsing. There have been severe bear markets since then, but no crashes of 20% or more.

During the 1980s and 1990s, Wall Street reflected a market-friendly atmosphere. Marginal tax rates were reduced on income, estates and capital gains; industries like telecommunications, banking and transportation were deregulated; the rate of inflation declined; interest rates, after topping out in 1982, fell dramatically; and the global economy expanded rapidly following the collapse of the Berlin Wall and the Soviet central planning model.

The supply-side bull market continued during the 1990s, when Bill Clinton was president. The boom continued largely because Clinton, a new-growth Democrat, coupled with a conservative Republican Congress, “did no harm,” and, in fact, made progress with welfare reform, a slowdown in government spending, a balanced budget near the end of his term, and no major war.

Throughout the 1980s and 1990s, I debated the doomsayers, perma-bears and gold bugs who were predicting an economic Armageddon due to deficits, inflation, AIDS and war with the Soviets or the Middle East. I may not have won those debates (sometimes I was laughed off the stage) but, ultimately, I was proven right. It was during these debates that I predicted the fall of the Berlin Wall in the late 1980s, and that the Nasdaq would “double and then double again,” which it did in the mid-1990s. The 1980s and 1990s were not periods of stagflation, but renewed vigor, and my subscribers prospered.

Invest in American Exceptionalism

LESSON #2: Bull markets climb a wall of worry.

Free enterprise and the stock market flourish when governments provide a stable, non-inflationary and non-war environment.

If you look at the long-term chart of the U.S. stock market, the trend is upward. There is a natural tendency under free enterprise for companies to expand and pay more dividends. But there’s nothing automatic about it. In order for the markets to flourish, government policy must “do no harm.”

At the end of the 20th century, three economists conducted a study of stock exchanges in 34 countries and found that every one of them experienced a long-term upward trend, including the United States, Europe and Japan, despite two world wars and a Great Depression. (The study did not include countries whose stock exchanges closed during the 20th century, including those of Russia, Africa, China and all of Latin America.)

The chart also showed that the U.S. stock market was the top performer, and Wall Street has continued to outperform all other major markets since 2000. The United States still leads the world in technological advances.

As a result, I have emphasized investing in the United States most of the time in my newsletter.

As long as America remains a free and stable economy, subscribers should stay invested largely in the United States for the long run.

The Money Game

LESSON #3: Don’t fight the Fed. Adjust your portfolio when money is tight, and again when money is easy.

The Federal Reserve controls the price and quantity of money, the lifeblood of the economy. If central banks adopt a “no harm” policy of monetary stability, which Milton Friedman called “rules, not authority,” prosperity is genuine and relatively permanent. Unfortunately, leaders like to tinker, and Fed chairmen are no different.

In the early 1980s, when Paul Volcker was in charge, he engineered a largely anti-inflationary policy, and it worked. Under Alan Greenspan, who came aboard as chairman in 1987, the trend toward lower interest rates and inflation continued, but he was more of an activist. He changed policies — tight money to easy money and back again — seven times during his 19-year stint as Fed chairman.

Wall Street dislikes tight money, when the Fed takes away the punch bowl. Greenspan tightened in 1994, 2000, and 2006, resulting in sharp corrections in the stock market. But Wall Street hates inflation even more, so occasional tight money policies are worth the price, despite political opposition.

I recommended technology stocks during the 1990s, and we profited handsomely. In 1995, I made the bold prediction, “The Nasdaq will double and then double again.” It did, but then came the fall.

Only a handful of advisors, including Robert Shiller at Yale and Jeremy Siegel at Wharton, predicted when it was going to end. In late 1999, I visited Burt Malkiel at his office at Princeton University, and he showed me a chart of the U.S. stock market, and both of us recognized at that moment that the bull market couldn’t last. Trouble lay ahead.

But it was hard to know the difference between a new bear market and a bull-market correction. Ultimately, the tech-laden Nasdaq fell in half, and then halved again (a prediction I didn’t make).

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‘The Lost Decade’ of the New Century

The year 2000 was the beginning of the “Lost Decade” of the new century, where stocks languished for 10 years (2000-2009).

Investors must learn to adjust to new cycles and trends and must be well diversified into “non-correlated” investments or face the consequences. In any case, during a prolonged period of stagnating or declining markets, Dick Russell said it best: “The winner is he who loses the least.”

The Fed adopted another easy money policy after the 9/11 attacks in 2001. I was one of the few analysts who worried about a possible terrorist attack by radical Arabs, warning subscribers in the June 2001 issue, following my May trip to the Middle East. The 9/11 attack was a “black swan” that most experts failed to predict. The Fed cut interest rates and kept trimming them through 2004 all the way down to 1%.

Greenspan feared that the United States would go through a Japanese-style deflation, a fear that has proven unfounded. Rates have remained surprisingly low while the economy has flourished.

The Financial Crisis of 2008

LESSON #4: Gold is money and the best insurance against an inflationary future and bad government policy, but don’t go overboard buying gold.

Throughout the “deregulatory” atmosphere, government leaders of both political parties encouraged excessive home ownership through tax incentives, affirmative action and cheap credit. It created a perfect storm that exploded into the financial panic of 2008. The boom-bust cycle in real estate and other financial assets fit well with the Austrian theory of the business cycle.

Austrian economists such as Ludwig von Mises and Friedrich Hayek argued that easy-money policies cause an unsustainable artificial boom that must eventually collapse. That’s what happened in the first decade of the new millennium. I wrote a whole book on the subject, “A Viennese Waltz Down Wall Street: Austrian Economics for Investors, published in 2013 (see www.skousenbooks.com).

Throughout the Barack Obama presidency, I was skeptical about the performance of the economy and the stock market in the face of unsound policies, such as Obamacare and the Dodd-Frank financial legislation. The Democrats raised taxes, increased regulation and ran higher deficits.

Nevertheless, the economy and the stock market recovered after the devastating 2008 real estate collapse and economic crisis. The recovery was largely the Fed’s doing, due to quantitative easing (QE) and sharply lower interest rates.

I thought the Fed’s actions were inflationary and recommended investing in gold and silver during the 2000s. It pays for every subscriber to maintain a permanent position in gold and silver as a hedge against inflation, a financial crisis or war. Gold is an insurance policy against bad times, a lesson I learned well in the “Inflationary Seventies.” For now, that means devoting up to 5% of your portfolio to commodities such as gold and silver.

However, the fear of inflation was short lived, and in late 2011, gold and silver topped out. I recommended selling our gold and silver exchange-traded funds (ETFs), one of my better calls. Gold stocks collapsed, and we didn’t get back into gold until late 2018, seven years later.

The price of precious metals is volatile, and commodities don’t pay interest. Think of gold and silver as insurance. You need it, but you don’t want to have too much of it.

I have a naturally optimistic outlook, but occasionally our leaders blunder, and you must be prepared for times when peace and prosperity are elusive.

Dealing with Questionable Brokers and Bad Advice

LESSON #5: Don’t be tempted into blindly turning your hard-earned money over to a money manager, or any one mutual fund. Diversify. Investigate before you invest.

Let me add another important piece of advice: Beware of bad advice, lousy brokers, fraud and deception on both Wall Street and Main Street. It happens all too often. I’ve had my share of phone calls from anxious subscribers who have been conned into some kind of fraudulent or overvalued investment or tax shelter. The Bernie Madoff scandal was symptomatic of the dangers of trusting con artists who overpromise.

Greed is a dangerous passion, and it can get you into trouble. Like many of you, I’ve been tempted at times to invest in a “sure deal” stock or investment that promises huge returns, only to be disappointed. In my entire career of investing, I’ve only hit it really big on two or three penny stocks.

Take my word for it: Out of thousands of penny stock and tax shelter deals out there, only a handful will ever succeed. You’re better off paying your taxes and investing the difference in index ETFs and top-rated mutual funds. On Wall Street, the conservative tortoise invariably wins the race against the speculative hare.

Managed accounts that promise above-average returns are also a temptation. Most are run by legitimate money managers but, even then, they may not live up to their track record. Never invest all or most of your funds with any single money manager, no matter how trustworthy or gifted he or she may be in picking stocks. Manage your own money as much as possible. Nobody cares more about your money than you do. If you do turn your money over to a money manager, diversify into several managed accounts.

The best way to invest your savings is in your own business or future business. Your own business is usually the fastest way to build your net worth. If you look at the Forbes 400 List of Richest People in America, few made it big by investing in the stock market. The vast majority earned their wealth in manufacturing, energy, retailing, entertainment, construction, banking and technology.

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But being an entrepreneur is not for everyone. If you are not suited for creating your own business, the next best thing is to invest in other successful businesses. And that’s done through the stock market. Invest in good businesses that can’t help but grow over time, as J. Paul Getty wrote in his classic book, “How to Be Rich.”

‘Wall Street Exaggerates Everything’

LESSON #6: Invest in good companies for the long run and take advantage of bear markets to buy. Don’t panic. The key to investment success is time, not timing.

One of the most shocking studies I’ve seen was made by Richard Bernstein. I raised the question, “Is Investing a Loser’s Game?” He shows the results of investing in various asset classes over a 20-year period, 1993-2013, versus the “average investor.” He shows that while the stock indexes rose 10% a year during this time, the average investor did not even do as well as a money market fund.

The primary reason for the poor performance by individual investors is because that they are tempted to buy an individual stock (called “cherry picking”) or they seek to time the market. Timing the market is alluring because investors, especially retirees, fear losing 50% or more of their assets during a bear market.

It’s extremely difficult to hold on during a bear market. As Steve Forbes astutely observed at FreedomFest, “Everyone is a disciplined, long-term investor, until the market goes down.”

The Golden Age of Growth & Income

LESSON #7: Investing in quality income and growth stocks offers the safest way to make money in the stock market in the long run.

For the past 20 years or more, I’ve focused on “income and growth” stocks and mutual funds: Profitable companies in growth industries, including finance, energy and technology, that pay a high and rising dividend do well during bull markets and cushion the fall during bear markets. I call it “sleep well at night” or SWAN investing.

It pays to be knowledgeable. If you want to be a successful investor, know all you can about the markets, the global economy and the political arena. Educate yourself by reading books, magazines, newsletters and attending seminars. “The used key is always bright,” as Ben Franklin always said. And that includes both formal and informal education.

That’s one reason I published “The Maxims of Wall Street: A Compendium of Financial Adages, Ancient Proverbs, and Worldly Wisdom” in 2011. As Dennis Gartman says, “It’s amazing the wisdom one can gain from just one line in your book. I read it every day.” I’m publishing a special seventh edition in 2020 (to order, go to www.skousenbooks.com).

A Special Thanks — and an Invitation to the 40th Anniversary Celebration

I have a lot of people to thank for keeping my newsletter going through these years: my wife Jo Ann, especially for providing a sounding board and editing each issue to make my writing clear and sensible; a series of managing editors and marketing directors; my publishing company’s original owner, Tom Phillips, who has been with me from the beginning and has offered unwavering support; Salem Media President David Evans, Eagle Financial Publications’ Vice President Roger Michalski, my long-time editor Paul Dykewicz and our creative marketing team, for their constant encouragement and innovative plans to expand my services, including the four online, short-term trading services that we began in 2005.

Last, but not least, I want to thank the hundreds of thousands of subscribers who have renewed their subscriptions, asked questions, given me counsel, and become friends at conferences and on cruises. I even appreciate those who have come up to me at seminars and begun a conversation with the words “I used to subscribe to your newsletter,” because I learn from them, too.

In celebration of this year, the 40th anniversary of Forecasts & Strategies, Eagle Financial Publications is hosting a special three-day financial seminar at FreedomFest, scheduled for Monday-Thursday, July 13-16, 2020, at the Paris Resort, Las Vegas.

I encourage every subscriber to join us. In addition to our electrifying keynote speaker, Dr. Jordan Peterson, the theme of our three-day investment conference will be “Forecasts & Strategies for a New Decade.” I’ve invited the top forecasters and visionaries who have had a great track record in predicting the future of science & technology, politics and the markets. They are few and far between!

When you come to this year’s FreedomFest, be sure to buy a 2020 American Eagle Silver Dollar. Keep this silver dollar with you as a good luck piece, the way I have carried mine in my pocket for 30 years. The date, 2020, is a perfect remembrance of the 40th anniversary: 20 + 20 = 40!

To sign up for FreedomFest (July 13-16, 2020, Paris Resort, Las Vegas), go to www.freedomfest.com, or call 1-855-850-3733 ext. 202. You will be glad you did. FreedomFest has changed people’s lives.

What will the next decade of Forecasts & Strategies bring? Will it be another Roaring Twenties or a Great Depression? Stick around and we will witness history together.

Yours for peace, prosperity and liberty, AEIOU,

Mark Skousen

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