The current bull market turns 8 years old tomorrow. It's been quite a run! As is usually the case, it was birthed in terrible circumstances, distrusted by the masses through much of its early rise, and only now when it is getting long-in-the-tooth is it receiving some love from individual investors.

This bull has been extremely unusual in at least one regard though — it's high dependency on Central Bank stimulus. The Wall Street Journal reported last fall that a stunning 60% of the bull market's gains had come not just in response to the Fed, but literally on the exact days the Fed announced its policy decisions! The average gain on those announcement days was 0.49%, 50 times higher than the average gain of 0.01% on other trading days.

Thankfully, the market has been shifting away from that high degree of dependence. Stocks swooned for a couple months when the Fed raised interest rates the first time, back in December of 2015. But the market has largely shrugged off the more recent January rate hike and talk of subsequent hikes to follow as soon as later this month. That's a good sign that things are hopefully returning to a more historically "normal" state from the Fed-dominated Twilight Zone of much of the past decade.

Perhaps not surprisingly, when the market has run up as high and as long as this bull has, comparisons to past bull market tops start becoming more frequent. Comparisons to the late-1990s abound. Those comparisons have a bit of a double-edged sword quality to them. Naturally everyone is aware of the bruising bear market that followed the dot-com bubble — tech stocks in particular were gored to the tune of an 83% decline in the Nasdaq index, with broader stocks falling by roughly half (and longer-term, a second sharp bear market that cumulatively pushed stock market returns negative for over a decade following the early-2000 peak).

But many forget that the warning signs of that bull market's excess were visible long before the market's peak. The now infamous "irrational exuberance" speech by then-Fed President Alan Greenspan was delivered way back in December of 1996 — over 3 years before the market would peak. Passing on the gains delivered by the rest of that bull market would have been a missed opportunity indeed.

It would seem we're revisiting that late 1990s dynamic once again. On the one hand, those who watch the market's oldest and most reliable valuation measures warn that from current valuation levels, the market has always faced dismal future returns — usually by route of significant declines. Some of the most grizzled bearish voices warn that the stock market has just reached "the most broadly overvalued moment in market history" — worse even than 1929 or 1999 when measured based on the average stock.

On the other hand, the economy is showing welcome signs of life, both here at home and globally. U.S. corporate earnings have just snapped an earnings decline that dates back over two years. Government policy seems pointed in a pro-business direction to a degree unseen for the past decade. It's not as if the reasons for stock market optimism are flimsy or unfounded. There are even some who argue we're not entering a 9th year of an old bull market, but rather just the 4th year of a new "secular" bull market — the implication being that this bull could have much further to run.

What's an investor to make of all this?

Thankfully, we have a wealth of experience to draw on here, given that SMI was already a decade old when the market was peaking at the end of the dot-com bubble. Some of that experience was painfully earned, but is instructive to us today.

Back in 1998, SMI suffered through one of its worst relative-performance years in the newsletter's history, with the flagship Stock Upgrading strategy earning just half the return of the index-based Just-the-Basics strategy. (What a bizarre year 1998 was, with the already overpriced large S&P 500 stocks gaining a whopping 28.6%, while the more-reasonably priced small-cap Russell 2000 index actually declined 3.4%.) The reason for that underperformance was primarily our belief that the market was living on borrowed time and had become too richly valued. Which was true, but too early. But back then, SMI had fewer options in our strategy toolbox, and Upgrading didn't have the ability to side-step a plunging market the way we do now with our Dynamic Asset Allocation strategy. So we allocated conservatively in 1998 and "suffered" with returns that lagged the broader market significantly (although Upgrading still made 9.6% that year).

The lesson for today: sometimes even when you know something is going to end badly, you can be premature on your timing. In 1999, we learned from our mistake and offered SMI readers two different sets of allocations — one for "bold" investors and another for "wary" investors. But it's worth noting that even with 1998's relatively poor returns included, along with the lower "wary" returns of 1999, SMI's long-term returns for the periods encompassing both the 2000 and 2008 bear markets were outstanding. A large part of that success is due to not making all-or-nothing decisions like getting out of the market. Fine-tuning in a direction of lower risk? Absolutely we did that. But we stayed invested, and SMI's "wary" Upgraders saw their portfolios gain an additional 58%(!) between the beginning of 1998 and the end of the first quarter in 2000 when the market finally started to roll over.

Trying to time that expensive market would have been a bad move for SMI investors in the late 1990s, and that is likely also true today. SMI isn't going to be recommending separate sets of allocations for those who are bold/wary about the current market. Thankfully, we don't need to, given that we have broader (and better) tools available for SMI members today than we did 20 years ago. SMI members who are allocating reasonably across our main strategies (DAA as well as some combination of Upgrading, JtB, and Sector Rotation) can feel comfortable maintaining their market exposure, knowing they should continue to see gains for the duration of this bull market, while having protection (in proportion to their DAA allocation) whenever this bull market finally does come to an end.

While that positive history lesson should provide some comfort to investors sticking to a well-diversified plan, I'd be remiss not to point out what happened to many investors in the late 1990s and the subsequent bear market. Seeing year after year that "any idiot" could make huge profits in high-flying tech stocks, many investors abandoned the small-company and value stock diversification in their portfolios. Most of these investors lost big as tech fell 83% in the following bear market, while not-coincidentally, small-company and value stocks helped those of us with diversified portfolios escape the worst of the 2000-2002 bear market damage.

The stock market resembles the late-1990s market more with each new milestone and measure of valuation excess. Don't make the same mistakes investors made 20 years ago and jettison your defensive holdings just as you need them most. You can afford to stay invested and harvest any late bull market gains today as long as you're disciplined enough to maintain a slightly defensive posture.