You hear it all the time, but it’s completely wrong.

I know. I know. It sounds so right and sensible, it must be true. But it’s completely false.

It drives me nuts.

"Expert" after "expert" repeats this lie on the financial news, and the "experts" sitting across from them never correct the lie.

For me, it’s an easy way to know if an "expert" is legitimate or not. If he spouts this lie, he doesn’t know investing.

The simple, innocent lie goes something like this: "Well, the economy is doing better, so the stock market should do better, too." 

It sounds believable. But it is simply not correct.

The truth is, to make the biggest gains going forward, you want to buy into a "bad" economy — one where economic growth is zero or lower. The lesson of history is clear:

• When the economy is doing great, chances are stocks will underperform over the next year.
• When the economy is doing badly, chances are you’ll do very well in stocks over the next year.

This isn’t just my opinion, this is a fact.

You see, with my True Wealth Systems service, I have access to the best financial databases in the world. So to answer this question as completely as possible, I looked at U.S. stock prices versus the U.S. economy going back to 1800.

Astoundingly, since 1800, when the economy has been doing really well (when "real gross domestic product" has grown at 6 percent a year or more over the preceding 12 months), you would have lost money in stocks over the next 12 months.

On the flip side, when the economy was contracting (shrinking), you’d have made a lot of money in stocks. The compound annual gain in the Standard & Poor’s 500 index a year later was 50 percent higher than the gain in the index with "buy and hold."  

You might say, "Steve, what happened in the 1800s doesn’t matter as much here in the 2010s." 

OK. Well, let’s take a closer look. Quarterly data for U.S. economic growth starts in 1947. So let’s start in 1947 instead of 1800. The results turn out the same.

Since 1947, simply buying and holding stocks would have earned you a 7.3 percent compound annual gain.

But when the economic times are great (when the economy has grown at 6 percent a year or faster over the preceding four quarters), stocks have delivered a compound annual gain of 4.2 percent over the next 12 months.  

Meanwhile, when the economy has contracted over the preceding four quarters, stocks have delivered an astounding 18.5 percent compound annual gain over the next 12 months.  

Look, you’ve even experienced this effect recently.

The economy was shrinking for all of 2009. Stocks bottomed in early 2009 and then soared. 

You know what I’m saying is true.

You see, great conditions get "priced in" to the stock market. By the time things are great, stocks are usually too expensive (and due for a big fall). When things are terrible, stocks become very cheap. You want to buy when things seem terrible.

You do make money in "normal" times, of course. But the biggest gains come after the economy has been shrinking. And stocks perform their worst after the economy has had a great run of growth.  

Don’t let the "experts" tell you any differently. 

Good investing, 

–Steve Sjuggerud

This article was original published on Feb. 25, 2013, at DailyWealth.com.