Lessons from the Bull Market
Do you remember how you felt about the stock market on March 9, 2009?
Evidence suggests many investors have blocked out those fearful times. Five years after the S&P
500 hit its lowest point during the financial crisis, investors are pouring money into stocks.
In 2013, investors put $172 billion into U.S. stock mutual funds and exchange-traded funds, more
than they had withdrawn from 2008 to 2012 combined, according to Lipper, which tracks funds.
They have added another $24 billion in 2014, through March 5th.
A little complacency is understandable. If you took a Rip Van Winkle nap in 2007 and woke up this
weekend, you might conclude nothing bad had happened. The S&P 500 has shot up to record
levels and hit another all-time peak on Friday. The index is up 178% over the past five years, not
But the financial crisis was real and so was the steep plunge it triggered in the stock market. Instead
of sweeping those memories aside, investors need to reflect honestly about what that bear market
meant, how it affected their behavior then and how it ought to factor into their thinking now.
Above all, investors should prepare for the future with a few strategies whose enduring value has
been underscored by the events of the past five years.
Be Skeptical of Experts:
Take expert predictions lightly and if you act on them, make small moves
rather than drastic ones.
Remember What Losing Felt Like:
In a speech about intellectual honesty 40 years ago, Nobel
Prize-winning physicist Richard Feynman said, “The first principle is that you must not fool yourself —
and you are the easiest person to fool.”
Owning some stock is a good thing for many investors. Instead of periodically
bailing on stocks, investors would be better off keeping a smaller amount in stocks and sticking with
that allocation in good times and bad. Alternatively, investors can pare back their stock allocation
if they’re willing to step up their savings rate to compensate.
Be Wary of Labels:
Terms like bull market and bear market are eye-catching labels — not forecasts.
Question Performance Figures:
Past performance doesn’t guarantee future results. In fact, it can
be a poor guide to past results, too.
(Source: Wall Street Journal, 3/7/2014)