I was thinking about holding stocks for the long run after reading a post by Jim Cramer on RealMoney today.

My own bias is that holding stocks for the long-run simply to hold them for the long run is a foolish proposition for most investors. 

Generally, the theory's advocates cite that in almost all cases, over a 20 year period, stocks outperform all other asset classes.  This may be true, but my question is, who has got 20 years? 

Most people do not start saving until their mid-40s.  From 1966 to 1982, the Dow Jones Industrial Average rose exactly 0%.  After inflation, the Dow did not produce a positive return until 1991.  Can you imagine a person who is 45 diligently saving year in and year out, yet when they turn 65 and are ready to retire, having less in real terms than they did two decades earlier?  This is horrible advice.

This decade, investors in stocks have lost money in aggregate.  If you put your money into a broad market index of US stocks on January 1, 2000 and left it there, you have less money.  And woe to the investor who invested in the Nasdaq at that time. 

The idea that investors should always invest in the stock market at any time for the long-run does an enormous disservice to investors.  At times, investing for two decades is extremely profitable, as it was at the beginning of the 1980s.  But it is not all the time.

Especially when there are other options.  Essentially, always investing in stocks for 20 year periods is an exercise in dogmatic ideology that presupposes investors are not intelligent enough to know when to invest in other opportunities over multi-year periods.  We are not talking about day trading here.  If you had invested in bonds or commodities or real estate or currencies or even fine wines at the beginning of this decade, you would have done better than investing in US stocks.

However, a time comes when investing in stocks over multi-year periods makes good sense.  Which gets me back to Cramer's article as we may be approaching one of those times now.

The advice that Cramer gives in the above quote was great advice - 10 years ago.  He was not giving that advice then, however. 

Stocks tend to move in long cycles, with a decade or two of strong returns followed by a decade or two of volatile consolidation and violent bear markets.  One follows the other, and I am willing to bet that stocks are closer to the end of this secular bear market than the beginning. 

I run two market models, a price/earnings model and a dividend discount model.  Near the lows Friday, both were projecting 12% per annum returns over the next two decades, the highest level of expected return by my models in many years.  Since the rally off the lows Friday, the expected return has fallen to 10%-11%, a bit lower, but higher than it has been since the bottom in stocks in 2003. 

Do not get me wrong.  I am working from the thesis that the economy will be difficult for some time, that stocks are in a trading range, and we will probably go back and re-test or break through the lows set on Friday.  I am actively trading this market and intend to continue doing so for a while.

However, if one wants to buy stocks for the long-run, it is a more prudent strategy now than it was a a decade ago.