SMI Visitor's Blog       

Welcome to the SMI Visitor's Blog where you'll find selected excerpts from our Member's Blog, plus occasional posts created especially for our visitors.

For SMI Web Members, click here to go to the SMI Member Blog.

« Blog Home

2008: As bad as it gets

Given the pain induced by the markets in 2008, it's probably not a huge surprise to learn that with the final numbers now in, last year was the worst decline the markets have suffered since 1931. That was 77 years ago. If it seemed like last year was beyond everyone's frame of reference, that's because it was - very few of today's investors have ever witnessed a year like we just experienced.

In a way, that's actually good news. We've just taken the toughest punch the market will likely ever throw at us. It hurt, it definitely wasn't fun, but hopefully you're still standing.

"Yes, but how do we recover from the damage of a year like that?" I'm seeing that type of questioning from many sources (in particular, those criticizing non-market timing investing approaches).

The answer is to continue following your discipline. New bull markets often gain rapidly in their early stages. In 2003, Upgrading soared 52% in just 9 months, once the March retest of the earlier bottom was complete. That type of performance goes a long way towards erasing the damage of the previous bear market. (Nor was it an isolated case - here are several more examples of sharp rebounds off of bear market bottoms.)

Of course, it's possible the bear market isn't over. And even if it is, it's also possible we could see a retest, a la October 2002 - March 2003. Still, for those who have made it this far, it seems well worth the current risk to stay invested so as not to miss the early returns of the next bull market whenever it begins.

For buy-and-hold investors, the hardest task is gutting out a steep market decline. We've just had the worst calendar year example of that in 77 years. That's as tough as it gets.

The situation is quite different for the market-timers. They look good now, but their hardest task still lies ahead: deciding when to get back into the market. Few will get back in before the typically large initial gains of the next bull market are made.

The timing crowd has been able to relax of late while buy-and-hold investors have been uncomfortable (to put it mildly). At some point, those roles will reverse. If you've spent the past year on the uncomfortable side, I wouldn't suggest volunteering to switch teams at this point.

Powered by Movable Type  |   Subscribe  |   Email Updates