Being Street Smart
Sy Harding
TOO MUCH BULLISH SENTIMENT? August 14, 2009.
By far the majority with skin in the game of investing have little or no interest in the details of how their money is treated when left on its own.
I speak with people all the time who make remarks like, “I threw my 401K statements in a drawer unopened for almost a year. I couldn’t stand the losses. But with all the talk of the stock market being up 50% I figured I’m good again, and opened the last one. I’m still down 30%. Thirty percent of my savings are still gone. The market’s up 50% and I’m still down 30%. I don’t get it.â€
Well yeah. The stock market has had its biggest and fastest rally since the 1930’s off its March low, with the S&P 500 up 52% in just 5 months. But the problem is that in the bear market it lost 57% of its value. If you start out with $100,000 and lose 57% of it you have $43,000 left. You’d have to more than double it, in fact make a 132% gain, to get back to $100,000. So the S&P 500 is still down 35% from its level at the top of the bull market in 2007. (It would need to gain another 54% from here to be back to its 2007 top). And in fact, in spite of its 52% rally off the March low it is only up 12% for the year so far, the 25% plunge in January and February was so severe.
So I ask them why they didn’t do something to stem the losses instead of ignoring them, and they say they aren’t knowledgeable enough to know what to do, don’t have time to learn, and their advisor or their employer or their friends told them to just stay the course, the market always comes back.
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