“Gentlemen, we must leap over the high wall.”  Hearing that, I thought to myself “Huh?  What is he talking about?”  I was too young (21) – and too poor-- to have an understanding of what this seeming allegory was about.  The words were spoken with strong conviction in a heavy Boston Brahmin accent.  To me, an Irish kid from public housing, he sounded like Winston Churchill.  But then he did have a famous name and undoubtedly lived on an estate … with high walls.  The man, I thought, probably assumed everyone else in the room did as well.  But leap over one?

The setting was the top floor of 15 State Street ... now a national landmark.   It was 1965 and I was the youngest person in the room.  The comment was made at a Monday morning research meeting where analysts would present their newest ideas.   Because of my age, I didn’t understand what the allegory was about.  I would later learn it was a Wall Street expression that had been coined in the 1950s; “a bull market climbs a wall of worry.” That expression was the reason for the speaker’s comment.

Fifty years later, there is again a great wall of fear.  But this time I understand the allegory’s stock market meaning.  The higher the wall of worry, the longer and higher a bull market can go.  This is because markets will always make the majority of investors wrong.  Case in point:  The current bull market started in the depths of despair in 2009, yet eight years later the fear is even higher.  It is now the second longest bull market in history and, ironically, this has only increased the height of the wall.

In the past, a bear market was fueled by fear and a bull market by greed.  But this bull market has been quite different.  It’s been fueled not by greed, but indifference and fear.  Why?  Human nature hasn‘t changed.  What caused the difference is that for the first time a stock market decline had nothing to do with the stock market.  It was caused by a market many times larger … the opaque debt market.  At the time, bonds had no knowable value.  Stocks did.   Stocks represented real money.  Debt did not.

After the debt crisis no one believed the stock market could go higher.  That became the conventional wisdom.   As my friend Ed Noonan said many times, “It’s not that the majority is always wrong.  The majority can be right for a period of time.  What most investors miss is the inflection point of change.”  This was demonstrated in March of 2009.  At the present time, the majority believes two things; that active managers cannot beat the market and … the more the market goes up, the greater the risk to the downside.  Those beliefs have built the highest wall of worry in the past 50 years … perhaps ever.

The wall has been “ built “ on:  Geo-political risk, the upcoming Presidential election, ISIS attacks, the economic recovery (weakest since 1949), middle-class dissolution, stagnating global economies, the decline in small businesses, government regulation, distrust of political candidates and stagnant wages for over 40 years.  The current wall is now a very crowded trade.  As such, it suggests this bull market could become the longest in history.  To profit from it, each of us will need to leap over our own “wall.”