Eight-year anniversary of Bull Market
A little over eight years ago, on March 9, 2009, the equity market as represented by the S&P 500 (the largest 500 companies domiciled in the United States) closed at 676. As of the market close this past Wednesday, the S&P 500 closed at 2362, three and one-half times that closing low. The article below is one that appeared in our Sunday column on March 29, 2009, less than three weeks from the bottom. We believe it merits a reprint as it focuses on how investors benefit from focusing on the long-term as well as buying when nobody else wants to, when fear is in the air.
“As human beings, most of us are rational. We don’t run in front of moving cars or put our hands on hot stovetops. Quite often becoming a successful investor requires that you take a seemingly irrational step. The more rational you are the less likely you are to buy low and sell high and the less likely you are to have faith that it’s not different time. It is for this reason that, after talking to many investors, clients and non-clients alike, that we thought within the body of this column we would, in no particular order, present some thoughts and questions for the readers regarding investing.
If the entire objective of investing is to buy low and sell high, why then when investors have the chance to actually buy low and sell high very few do?
If it has never been “different this time” before regarding the stock market, why then do investors think it is different this time and investing will never again be profitable? If you do think it is different this time and it is not then you may also be making a life changing decision. At the top of a bull market there are few pessimists. At the bottom of a bear market there are few optimists.
From top to bottom the S&P 500 dropped more than fifty-six percent. Sounds to us like it priced in a pretty severe recession.
Sometimes you can do everything right and still not be rewarded. That doesn’t mean you aren’t making the right choices. We recognize that stocks have gone nowhere in more than a decade. We recognize that this is very frustrating. We recognize that you are feeling somewhat insecure. However, whenever we think of this we are reminded of the author of “The Complete Book of Running,” James Fixx, a picture of health who was very instrumental in converting millions of Americans during the 1970’s, including ourselves, into avid runners. Unfortunately, Mr. Fixx died at the age of fifty-two from a heart condition while running in Vermont. Is the moral of this story that Mr. Fixx should have not exercised and not eaten healthy or is it that sometimes things just don’t work out as planned? We would suggest the latter.
We often get the claim that “I’m going to get back into the market once the economy looks better.” To that we respond that the stock market is a discounting mechanism and it therefore bottoms approximately six to nine months ahead of economic turns for better and for worse.
Gold is a hedge against inflation and not an asset class.
At the current time, investors are experiencing the worst ten-year stretch since the ten years ending 1938. Sounds like investors over the next ten years might be amply rewarded for their pain they have endured over the prior ten.
At the bottom of the bear market most investors will be severely under allocated to stocks. This is just some food for thought. We all have different goals and objectives. We all have different sources of income leading up to and in retirement so that we must all plan accordingly. However, over the past century, for the average American the surest way to achieve wealth has been through investing in the stock market. Oh, we forgot. It’s different this time.”
Please note that all data is for general information purposes only and not meant as specific recommendations. The opinions of the authors are not a recommendation to buy or sell the stock, bond market or any security contained therein. Securities contain risks and fluctuations in principal will occur. Please research any investment thoroughly prior to committing money or consult with your financial adviser. Please note that Fagan Associates, Inc. or related persons buy or sell for itself securities that it also recommends to clients. Consult with your financial adviser prior to making any changes to your portfolio. To contact Fagan Associates, Please call 518-279-1044.