Lou Mercer: Oh, great. Let's go ahead - all right, Lee, let's answer some questions. Sarah in California, how long have we been in the current bull market? And how does it compare to previous bull markets?
Lee Bohl: Yes, okay, that's a great question. Our current bull market started in March of 2009, so we are in, what, the seventh year? That is the second longest. The first long was, depending on who you talk to, either 1990 to 2000 or '87 to 2000. Some people give it one - that was either 10 years or 13 years.
As far as rates of return in our current bull market, it's about average for a bull cycle so far. We're up about a couple hundred percent from the - from the bottom.
Lou Mercer: Do bull markets usually top out just because they get old, or is there something else that has to happen?
Lee Bohl: Right. Yeah. They say that markets, unlike humans, just don't die of old age, right? There's got to be some reason. The two main reasons that bull markets stop are either a recession or inflation. And right now, I'm not seeing either of those. I'm not a macroeconomist, but if you read Liz Ann Sonders, who's our chief market strategist, the odds of recession they think are pretty low. So that's certainly not going to derail the market.
Inflation has been low. It's still under the Fed target, if you take a look at the core PCE. It's about 1.7 percent. Their target is two percent. So I don't see that really, either. So the bull could continue a bit further.
Lou Mercer: Yeah. What are some of the biggest things that you've learned in your trading career? I know that before being in your role here for the last 25 years at Schwab, you were a scientist.
Lee Bohl: Right. The biggest mistake I made trading was to think of the market as a physical science, you know, where you have these rules, physics, you know, it's always that. The markets are social science, okay? That's the first thing. So you can use all these formulas. You can take a look at all these correlations. But in the end, the market moves on what people are thinking.
So that's why I basically moved to charts, because charts will tell me what is going on. I don't have to say, okay, the GDP is now 2.7 versus 2.6. Even if I had that news prior to it coming out, would I actually know the trade to put on? Probably not.
Lou Mercer: Yeah.
Lee Bohl: Right? Just going with the trend. The other great thing that I learned is don't try to pick a bottom and don't try to pick a top. Wait till something bottoms out. Okay? By that I mean don't try to catch it on the way down. Eventually, it's going to stop going down, or not, with Enron.
Lou Mercer: Yeah.
Lee Bohl: It's going to rally a little bit. It's going to come back, maybe test its previous low. If it starts going up again, then I might take a shot, because you've got some area where buyers have come in now twice. For some reason, they are interested at that price. It gives me a framework of when to get in.
The other thing that I've learned is the hardest lesson was buying something after I sold it if it was still a higher price. And that's very hard for people to do. If you use any trend following type system, for instance, you know, say the stock goes above a moving average and you consider that's a signal, and then it drops below, so you have to sell it, and then it goes up again, and now it's above where you just sold it. You still have to take that trade, because your system is telling you to do it. And some people just cannot do that, and then the thing takes off, and then they start chasing it, so -
Lou Mercer: Yeah, I know you mentioned a lot about combining both fundamentals and technical analysis, fundamental to try to give you that framework around an idea what to buy, and technicals are more on when to buy, and it gives you that great visual on when to get out.
Lee Bohl: Right. Yeah. And the way I think about it is for short term traders, like day traders, maybe the fundamentals don't matter so much, but I've always thought it's good to fish in a well-stocked fundamental pond. So the first thing I do is look for good fundamentals, and I tend to use our own proprietary Schwab equity ratings. It's balanced. There is no subjectivity, you know. Analysts haven't done a great job over the years making recommendations. So I'll screen with that, and then if the market is going higher, I don't want a stock that's going down, right? I want to follow the trend of the market. So I will look for stocks that are above certain moving averages, or one moving average is above another, to get the trend, but within a group of already good fundamentals.
Lou Mercer: So that comes up all the time as far as people will ask what moving averages should they look at, or why are they even looking at moving averages?
Lee Bohl: Right. You know, nothing works all the time, and it really depends on also your timeframe. Generally speaking, if you like to hold a stock X amount of time, look back two to three times X for kind of a moving average length that you like. So if you like to hold for -
Lou Mercer: Say two months.
Lee Bohl: - yeah, two months, I'd say most people would look at the 50 day moving average. A lot of institutions will buy dips to the 50 day moving average. If they don't, for some reason, they're changing their opinion on the stock.
If you're more of an investor, then take a look at more - a longer term moving average, like the 200 -
Lou Mercer: So the idea is not to predict the future. It's really just trying to get you into what's working now and go on for the ride.
Lee Bohl: Right.