We all have that childhood memory of letting go of a helium balloon watching it effortlessly float higher.

Yes, there is very little effortless about stock investing…but there is something to be learned from this metaphor. That indeed stocks are like helium balloons where their natural tendency is to rise over time.

First, we need to appreciate why that’s true. Next what stifles their upside potential. And lastly, how this applies to our current investment strategy.

The Natural Order of Things

Consider this…that continual improvement is a prime driver of the human species. We have an innate desire to make things better and more productive which leads to a higher standard of living.

Or to put it another way…this improvement process creates greater economic activity > which churns out higher profits > which propels stock prices higher.

This perpetual machine forward is what makes stocks kind of like helium balloons where going higher is the natural outcome. And why bull markets typically last 5 times longer than bear markets (and this one is actually 10X longer than the average bear).

Unfortunately as we come back down to earth…we know its not that easy. Which leads to the next point…

Sometimes Stocks Are Held Down

The only way to stop that helium balloon from rising is to hold it down against its will. A recession is an obvious example. Where the excesses of the past expansion come home to roost as a period of decline. This will hold down profits and, obviously stock prices.

Yet even during the most raging bull market there are still a series of temporary sell offs, pullbacks and corrections. Meaning you don’t just float higher for ever and ever.

So think of each of these downturns as healthy realignment periods. That’s when previously lofty expectations are brought back down to earth allowing a positive path forward.

How Do We Apply it to Today’s Market?

This helium balloon metaphor works perfectly for today’s market environment. That’s because with Treasury rates lower than the dividend yield on the S&P 500 it creates a strong demand for stock prices. (This was explained in greater detail in my new presentation: REVISED 2020 Stock Market Outlook).

Meaning that stocks want to float higher as they are the vastly superior investment value to bonds. The one thing currently holding down our stock balloon now is sporadic concern about the spread of the Coronavirus.

We all know that it will never grow large enough to truly cause a US recession and bear market. Thus, investors should use any subsequent sell off as a “buy the dip” opportunity.

Just for clarity, the stock market will NOT float up 31% like 2019. Years like that are few and far between.

Instead you should expect 2020 to be a bit more pedestrian. So if you’d like some help charting a course to better results in the year ahead, then consider watching my presentation covering these vital topics:

• Hurdle #1: How to trade the Coronavirus scare
• Hurdle #2: Why the Presidential election will hurt stocks
• Year End Forecast
• Formula to find winning stocks in 2020
• 2 new “must own” stocks revealed
• And more to get you ready to successfully invest in 2020

Watch it now: REVISED 2020 Stock Market Outlook.

Steve Reitmeister

…but everyone calls me Reity (pronounced “Righty”)
CEO, Stock News Network, Editor of the Reitmeister Total Return

SPY shares . Year-to-date, SPY has gained 3.21%, versus a 3.21% rise in the benchmark S&P 500 index during the same period.

About the Author: Steve Reitmeister

Steve is better known to the StockNews audience as “Reity”. Not only is he the CEO of the firm, but he also shares his 40 years of investment experience in the Reitmeister Total Return portfolio. Learn more about Reity’s background, along with links to his most recent articles and stock picks. More...

More Resources for the Stocks in this Article