An old and particularly annoying Wall Street adage holds that “a bull market climbs a wall of worry.” It’s nettlesome for a couple of reasons: (a) it’s undeniably true, but (b) it still doesn’t tell you when or even if your worry is misplaced.Perhaps you’ll prefer the late John Templeton’s more elegant (and more complete) formulation: “Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria.” Any way you state it, this fundamental truism suggests that markets often go up quite a bit when many or most people are still firmly convinced that they have no business doing anything of the kind.

The plain fact is that it’s easy to be pessimistic when the economic data are dreadful and the market is falling. A crashing economy feeding the flames of a crashing market just feels right to most people. Regardless of what we end up deciding to do (or refrain from doing) with our portfolios in response to the bad economy/bad market feedback loop, at least we feel that we understand what’s going on.

It’s when the economy and the market seem to be seriously diverging that our anxiety levels start rising again. At such times, it’s not just that we don’t know what to do. It’s that what’s going on doesn’t seem to make any sense. This summer, investors may very well feel themselves to be in just such a pickle.

Gross domestic product is—or certainly was at last report—still falling. Despite massive federal stimulus that has no precedent by any measure since World War II, unemployment continues not just to rise but to soar. States are teetering on the brink of insolvency; California was recently paying its bills with IOUs. Home foreclosures are still rising, and home prices still falling. Even though a couple of the more successful banks have noisily repaid their TARP money, the banking system as a whole remains on life support.

Two of the three major auto makers have gone bankrupt; they are now largely owned by the government and their unions, and have thus transferred their huge unfunded pension liabilities to the taxpayers—who are also, through the nationalization of Fannie Mae and Freddie Mac, on the hook for the vast preponderance of the shaky mortgage debt in this country. And, oh yes, we have recently been giving very serious consideration to nationalizing health care in some form or fashion, with deficit and tax consequences no one seems to be able authoritatively to quantify.

All of this would make perfect (and perfectly awful) sense, except for one very bothersome fact. To wit, the stock market, at this writing in late July, is soaring. And that’s the verb, friends: soaring. It’s not rallying, it’s not recovering, it’s not creeping back. Up 44% (on a closing basis) in a heck of a lot less than five months? Excuse me: that’s soaring, or else there’s no such thing. There is surely a wall of things legitimately to worry about. And this market is certainly doing a bang-up job of climbing it.

People who rode out the horrific market decline of 2007–09—because we knew from bitter experience that we didn’t know where to get out, and would never know where to get back in, so we might as well just stay put—may regard this apparent contradiction with a certain amount of bemused detachment. (We paid in blood for that luxury, and you’d better believe we’re going to enjoy it.)

But the bad economy/rising market dichotomy can only be of very pressing concern to people who either removed their long-term investment capital from equities during the decline, or who have been holding back considerable new money—money which must at some point be committed to equities—waiting for some clear signal that the economy has meaningfully (and lastingly) turned. That’s historically the problem with either getting out of, or standing back from, a falling market: you get to be gratifyingly right for a relatively little while (in the context of an investing lifetime), but then you’re under the gun to be right a second time, with regard to getting back in.

The psychological pressure of that second decision is compounded, of course, by the largely self-imposed burden of regret at having “missed it.” How can I get back in the 970s on the S&P (this line of thinking runs) when I didn’t in the 670s…or the 770s…or the 870s…even when I kept reading that things might still be bad, but that they didn’t seem to be quite as bad as they were back when snow was on the ground. With my luck, I’ll get back in here in the 970s, and it’ll go right back down again…

This is a formula for paralysis. The way to break out of it—with the empathetic coaching of your financial advisor—is to begin thinking of the problem not in terms of the market but in terms of your goals. If you’re like most of us, money market yields are not going to get you where you need to go. They’re probably not going to be enough to secure a long retirement full of dignity and independence; they’re probably not going to get your granddaughter through college; they’re probably not going to keep your mother in a decent nursing facility, and they’re probably not going to fund meaningful legacies to the people you love and must leave behind in the world.

Try to formulate the problem as follows: every day you stay in cash at money market rates of interest is probably a day when you get further from, rather than closer to, the ability to fund your most cherished financial goals. Accepting that stark realization, rather than remaining mired in the bottomless anxiety of when and where to get back in the market, may—if you let it—move you toward a sensible long-term investment decision.

Warren Buffett, perhaps the greatest equity investor who ever lived, said, “The future is never clear; you pay a very high price in the stock market for a cheery consensus. Uncertainty actually is the friend of the buyer of long-term values.”

He said that in the issue of Forbes magazine dated August 6, 1979—just about thirty years to the day before you’ll be reading this. It may interest you—and, much more to the point, it may help you more comfortably to reach a good decision—to learn that on that day the S&P 500 closed at 104.

© 2009 Nick Murray. All rights reserved. Used by permission.