The final 'script' is approaching...

In a study that covered a 20-year period from 1992 through 2011, asset-management giant BlackRock found that the average individual investor earned 2.1% per year before taxes. Stocks went up 7.8% annually during the same period.

 

Another research firm, Dalbar, has shown time and time again that individual investors underperform the market...

 

The results of a recent study (which you can see here), show investors underperformed the S&P 500 over every time frame – 30 years, 20 years, 10 years, five years, and 12 months.

Stocks have gone up for longer than 1,000 days... They've basically been going up since March of 2009 – more than five years.

 

That is an incredibly long run – in years. If "life expectancy in years" mattered, I'd be getting worried.

 

But I don't think life expectancy in years is what matters... What matters is where we are based on the usual markers in the life of a bull market. Based on those, we are closer to the end than the beginning... but there's still upside potential from here...

On one of the first nights, a huge guy was lying in a lounge chair next to the hot tub smoking enormous Churchill-sized cigars – I think they were Montecristos. I told him the cigars smelled great and I'd wished I'd thought to bring one out. He offered me one of his and said he'd be right back. Sure enough, two minutes later he's helping me light it – a remarkably friendly gesture. To return the favor, we bought a few rounds of drinks, and the vacation talk began.

 

The cigar guy – Joe – who must have been 6'5" and probably weighed 280 pounds, was from Jersey. He and his wife were in the Turks to buy and sell beachfront condos. Easiest money they'd ever made in their lives, they told us. They'd bought their first one back in 2001, right after 9-11. It was easy, they explained. Condo developers only required a small deposit if you reserved your condo before it was built. Then, you had at least a year or two to find someone else to actually buy it. Since the price of these units had been going up about 50% from sales launch to completion, selling was easy. After a few more drinks, they told us how they'd taken their original $100,000 deposit and turned it into more than $1 million in four years, just buying and flipping preconstruction condos along Grace Bay.

 

Joe was on his way to becoming the Donald Trump of the islands. "Way better than stocks. There's no way to lose money. Beachfront property always appreciates. Plus, there's way more leverage in condos. At the very worst, we might end up owning four or five condos that we can rent..."

 

I innocently asked Joe, "Aren't you worried about how much the prices of these condos have gone up over the last four years?"

 

In the developments being built up and down the beach, a 1,400-square-foot, two-bedroom condo was now starting at $525,000. That's a starting price – the luxury buildings were asking for $1 million and up. That's $400-$800 per square foot – more expensive than most beachfront condos in the best cities in the United States! And this was for real estate on a tiny, hurricane-prone island that's an hour-long flight east of Miami.

 

The Turks are beautiful, and I certainly understand their appeal... But it didn't make sense to me that real estate prices here were beginning to rival Miami. And it certainly didn't make sense to bet on these prices after seeing how much construction was going up all around us.

 

But Joe wasn't worried at all: "No, we've kept funneling our profits back into more deposits. We haven't lost yet, and I don't see how we ever could."