If the stock market's benchmark indexes don't show much change over the next few years, many ideas about investing will.
A generation of investors has grown up since the last time the markets got stuck in a protracted "trading range," from the late 1960s through the early 1980s.
In mutual funds, they have grown accustomed to thinking in terms of momentum investing, fully invested stock funds, rising benchmark indexes -- the great performance chase.
Imagine how radically that mind-set may be altered in what Matthew E. Megargel, a Wellington Management Co. partner who oversees investments at the Enterprise Managed Fund (ENMCX), describes as "a grinding post-bubble environment with big trading swings."
Of course we can't be sure market conditions will be like that. The future of stocks is always a mystery. After extremes of bullishness and bearishness, though, nobody I have spoken with would be surprised to see a middling, muddling market for some time to come.
"Our best forecast is for a trading range with an upward bias," said Jim Coughlin of Retirement Systems Investors Inc., who like Megargel appeared at a year-end meeting of the outside sub-advisers who make investment decisions for Enterprise Capital Management, which has a $4 billion fund group. Coughlin runs the Enterprise Growth and Income Fund (EGRCX).
Much conjecture has already focused on a resurgent enthusiasm for dividends, which were little more than an afterthought in the 1990s. That's just one possibility.
Momentum investing, which emphasizes looking for further gains from top-performing companies and stocks, could take a back seat to a revived interest in contrarian strategies, which go against the flow.
The patience of many people who call themselves buy-and-holders would be put to a new test, challenging current dogma on such matters as the virtues of low portfolio turnover.
"Our policy has been buy-and-hold," says Coughlin, who had an ultra-low 3 percent annual turnover rate at Enterprise Growth and Income at last report by Morningstar Inc. "Now we might want to be a little more nimble. Future turnover may increase."
Absent much capital appreciation, it's often suggested that mutual fund investors will get more cost-conscious. As long as the market's up 20 percent, the argument goes, the clientele may not care much whether a fund's management fee is 0.75 percent or 1.75 percent. When the market's up 2 percent, the difference is more noticeable.
That, in theory at least, should cast a favorable light on index funds, which tend to have lower fees than managed funds because the former don't spend a lot of money picking stocks.
Then again, maybe not. The great love affair with index funds in the late '90s blossomed as the Standard & Poor's 500-stock index posted 20 percent gains or better for five straight years. If the indexes aren't going anywhere, the urge to invest in them could also languish.
Many active managers say they relish that prospect. "A sideways market is fabulous for stock selection," said Mario Gabelli, who manages Enterprise's Small Company Value (ESCVX) and Mergers and Acquisitions (EMACX) funds. "A flat-to-down market -- this is how you add and make returns."
Also, fund investors have a long history of dismissing the issue of fees, despite the many commentators who keep pounding away at the subject. The investment results that funds report, after all, include management fees and most other costs.
"While fee sensitivity may increase somewhat, we expect that it will not be a significant issue for the majority of investors," says Howard Schneider, president of the fund consulting firm Practical Perspectives Inc. in Boston.
Investors have already begun paying increased attention to dividends, which naturally loom large in churning markets. From mid-1968 to mid-1982, Bloomberg data show, the S&P 500 averaged a 5 percent annual gain, nine-tenths of which came from dividends. The Dow Jones industrial average actually declined slightly over those 14 years, if you don't count dividends that gave it a total return of 4.1 percent per year.
In hindsight, those years now can be seen as a great time to have been accumulating stock investments for the bull market that was about to begin. A new back-and-forth market could present a similar opportunity for farsighted investors.
To take advantage of that, though, may demand a lot of patience and the will to withstand the repeated discouragements of an entrenched trading range.