As Stephen King said:
"Even a stopped clock gives the correct time twice a day."
In the stock market, it's even easier, because you can be right and wrong at the same time! It all depends on the perspective...
Let's take the following example:
In A, at the top of the market, you can be a Bull and be right despite the crash that follows right after. You just have to stay invested in the long term. On the contrary, if you are a Bear, even though you are excellent at timing in the short term, you were wrong in retrospect, already a few months later. Even if the bear market had lasted longer, like in 2000-2003 for example, the stock market would have ended up going back up.
The Bear position is only sustainable in the short term, hence the difference between "long" (buying) and "short" (selling) positions. However, let's clarify that in the case of an isolated action, a Bull can be wrong in the long term (and the Bear is right, since a company can go bankrupt or at least end up in a purgatory that can last several decades, as UBS).
In B, at the bottom of the market, the Bull is right on all counts, in the short and long term. Let's note, however, that it takes a hell of a stroke of luck to hit the right time. It seems easy when you see the rest of the graph, but it is much less so in real life. The Bear, on the other hand, is very badly handled!
In C, in the trading range phase, the Bear and the Bull are both right and wrong in the short term. It goes up, it goes down... Overall, their position is neither winning nor losing, so we can't really say which of the two is right. Sometimes it's one, sometimes it's the other. Since we can't name a winner in the short term, we'll say that they were both wrong. In the long term, however, the Bull wins again.
In D, in the bullish phase, as in the trough of the market, the Bull is right on all counts, both in the short and long term, unlike the Bear who has a very bad time.
In E, in a bearish phase, as in the market peak, the Bull has a bad quarter of an hour. However, by maintaining his position, he will manage to be right in the long term (even if we do not see it on the graph... the stock market always ends up going up). On the contrary, the Bear is right in the short term, but is wrong again in the long term.
It all depends on what we are talking about.
We can see that depending on the time scale considered, we can be both right and wrong. Nevertheless, if bullish positions have about as much chance of being right in the short term as bearish ones, in the long term, they are always winners.
When we say we are Bear, without specifying a duration, we are always wrong. The Bear can only be right if he specifies that it is short term and that he does it at the top of the market (good luck detecting it) or during a bearish phase. When one claims to be a Bull, without specifying a duration, one is right only during the bottoms of the market and during the bullish phases. The Bull can also be right in all cases if he specifies that it is long term or, short term, at a bottom of the market (good luck also) or during a bullish phase.
In short, we are most likely to be right:
- If we are Bull in the long term;
- If we are Bull in a bullish phase or Bear in a bearish phase;
- If you are a Bull in a market trough or a Bear at the market peak, while being a cuckold and saying your prayers.
The Bear can only be right in the short term, at least when we are talking about an index. For individual stocks, as already mentioned, it can also win in the long term.
The Bull has the advantage of being able to be wrong in the short term. With a little patience, and above all a lot of courage and tenacity, he will end up being right (at least on the indices).
And then, this is probably the smartest, we can play on both sides: by alternating bullish and bearish opinions in the short term, depending on the trends, while remaining long over time.
All in all, the important thing is not to be right or wrong, but to be comfortable with the strategy followed. I started this article with a quote from Stephen King, I will let Inspector Harry conclude:
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"the stock market always ends up going up"
And yet, "past performance is no guarantee of future performance."
To my knowledge, there is no (universal) economic law that guarantees that the trend will always be upward over a time scale of a life expectancy (or longer).
This is what has been observed since the Stock Exchange has existed, of course. But its birth also coincides more or less with the dazzling economic development due to the increase in productivity and demographics (exploitation of cheap energy and progress in medicine/hygiene).
If these energies dry up without alternatives as conducive to economic development and we have exceeded the limits of the resources of terrestrial ecosystems, which induces a reduction in their capacity sooner or later, then it seems likely to me that the Stock Market could have an overall downward trend over the long term (that is to say on the scale of a life expectancy or at least of a generation).
A point for you! That's true. However, energy is omnipresent on our earth, and even in our universe (hydrogen constitutes 75% of its mass). So it's not that we lack energy (in the literal sense of the term :-)), just that we don't know (yet) how to exploit it efficiently and sustainably. It is indeed possible that this will involve an energy crisis, the time needed to develop (or perfect) "new" technologies, helped in this by the rise in prices. After this, the stock market will go back up, as it went back up for example after the two oil peaks of the 70s.