that you follow my advice, or decide for other reasons to invest a modest amount in stocks. Now fast-forward 30 years to learn that stocks have done fantastically over that time. In 2035 you are looking back at your current financing decisions.

Many investors that I know have fantasies of having made huge bets at just the right moment. One of my friends correctly predicted the surge in biotech stocks in the late 1990s. He made some money on his investments, but missed much of the opportunity (some of the stocks he followed went from $5 to over $100 in a year). Almost every conversation with him includes discussing his fantasy of borrowing every dime possible and buying those biotech stocks for the entire ride. Many other investors speak of similar dreams-betting against stocks during the bubble days, buying after the terrorist attacks in 2001, and more.

Imagine our prudent stock investor who looks back on 30 years of stock market gains. The fantasy will be that she or he had invested every penny in stocks and made a ton of money. Even better, if time travel is invented, perhaps our investor in 2035 can travel back in time and change the investments. Wouldnt it be great to look in your retirement account some years from now to find that magically your financial decisions had been altered so that you had made the perfect set of decisions?

In Back to the Future, Marty McFly also wishes that he could change the world. Near the beginning of the film, he sees his mentor, the crazy professor, shot down by terrorists. Wouldnt it be great if he could go back in time and change events so that the professor is prepared for the attack? That is exactly what McFly does by warning the professor when he is time traveling. Armed with this knowledge, the professor still gets shot, but a bulletproof vest protects him.

So if U.S. stocks continue their 200-year run, well wish we could go back in time to adjust our financial decisions accordingly. The funny thing is that when it comes to stocks, even if you dont buy any stocks, you will most likely participate in any continued stock market rally. Ive been making this point to my buddy Doug for years.

Doug was a college roommate who now runs a number of entrepreneurial businesses in Southern California (and has become quite a

surfer). He made a ton of money during the bubble years, in part by a huge investment in Qualcomm. At one point during those euphoric days Doug owned 8,000 shares of Qualcomm. He went out surfing one day and came back to learn that during his two-hour surfing trip, the stock had surged by over $70 a share. So in a morning of surfing, Dougs investment in one stock increased by over half a million dollars! Not bad.

Even after the bubble broke, Doug was still ahead on his stock purchases. During 2001 and early 2002,1 constantly urged him to trim his stock holdings. Do you think that stocks are going to decline further? Doug asked. I responded by saying that my advice was not based on a prediction of the stock market. Frustrated, Doug said, Why should I sell stocks if they are going to go up?

I had Doug then draw up a list of his assets. He was a rich guy worth millions. This money was divided between California real estate, the value of his businesses, and his stock holdings. I then asked him to describe a scenario in which his businesses were in trouble. The answer was that his businesses would suffer serious decline in a recession. The final question was to ask Doug about the value of his stock and his real estate in this scenario. The answer was that if the economic conditions went south, all three of his major sources of wealth would decline together.

The conclusion was that even if Doug owned no stocks, his wealth would go up along with a stock market rise. Doug participates in any stock market boom even if he owns no stocks. His real estate and his businesses are worth more in the good economic times that foster stock market gains.

Similarly, most of us effectively own stocks even if we havent bought any. Most importantly our job prospects probably go up and down with the stock market. If we put most of our financial eggs into stocks then precisely when we might need those resources because of problems in our lives, they are likely to be less valuable.

Most of us need not fear missing a stock market rally. If events turn out rosy, when we look back from the perspective of 2035, it will be as if we

had stuffed our portfolios full of stocks. In a stock market boom, we are likely to enjoy high salaries and rising real estate values. If things turn out less perfectly, we will likely need the money that we have and be glad if it isnt all invested in risky stocks.

Our Love Affair with the Stock Market Continues

Stocks seem to be close to fairly valued. It is easy to construct scenarios that make stocks look cheap and similarly easy to imagine worlds where they are expensive. This balancing of risk and reward is the definition of fair value.

My worries about investing in U.S. stocks come not from such fundamental analysis but rather from a perspective on emotional cycles. When financial manias reach the magnitude that we saw in the late 1990s, the recovery generally requires a period of extreme pessimism. While we had a significant bear market after the bubble burst, it seems that we never reached the requisite depths.

The final piece of evidence in this argument is that almost no one believes it. In fact, I find it hard to believe myself. I began serious stock purchases in the early 1980s. You could buy fantastic, rapid-growth companies with single-digit PEs. I used to walk around my San Diego apartment hitting the Wall Street Journal with excitement and muttering to myself, It is a historic time to buy stocks. I knew that stocks were cheap.

Throughout my investing life, stocks have been the best investment. So much so that I have earned far more from stocks than from wages. All of my training suggests that stocks cannot be as good an investment now as they have been throughout my life. Nevertheless, I dont really believe it. Or more precisely, my backward-looking lizard brain simply cant get over the fact that stocks have made me a lot of money.

For those of us who have made money for decades by plowing money