One of the cliches about bear markets is that they’re so devastating to investors’ portfolios because they (1)inflict huge losses in the sell-off and then (2) leave most investors so traumatized that they can’t bring themselves to participate in any rallies.
Well, it’s happened again. Or at least that’s one way to read a recent poll.
But the results from the poll are so extreme that we ought to take a second look.
According to a Bloomberg poll conducted on March 19-22 only three out of every ten people who own stocks. bonds, or mutual funds say that the value of their portfolio is up over the last year.
Among investors with incomes of more than $100,000 more say that they’ve lost money than report that they’ve made money on their portfolios over the last year.
And this after one of the great rallies of all time. From its low on March 9, 2009 to the period of the poll the Standard & Poor’s 500 Stock Index was up 73%.
Okay, I know that investors stay on the sidelines after big market collapses, so I’m sure many of the people, perhaps most, in the Bloomberg poll trailed the stock market indexes over the last year. But 70% have lost money? I don’t think so.
I do believe that 70% have stopped looking at their portfolio statements in reaction to their bear market losses. I do believe that 70% are convinced that they’ve lost money.
The trauma of a bear market doesn’t just change what you do—you move to cash and stay there in despite a huge rally—but how you perceive the results of what you’ve done. I think right now investors think the world is darker than it actually is—that they’ve done worse than they have—because they were mauled so badly by the bear.
I don’t know this. I do feel it in my own responses to the market. I feel like I’m investing while constantly looking over my shoulder to see what catastrophe is about to hit me.
So instead of feeling good about the last year or cheered about the future after the last year, I feel constantly apprehensive. When are they going to take the punchbowl away?
I recognize the psychology. I try to fight against this mind set. But I don’t always succeed.
I certainly understand why 70% of investors feel that they’ve lost money over the last year.
The best remedy to that, for many people, is to start reading those portfolio statements again.