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.
Greedibanks,as someone said there is less of a gamble on fcx at 22 then 62. Also there was some historical perspective to show the typical length of a recession. Kudos to Liz Ann Sonders of Schwab who wrote a compelling report that was available to all schwab investors.It showed historically that the odds were good that the recession was long in the tooth and it was time to get back in.
RossLEdgar-
I believe that it is tight cost controls, I have some friends who worked at the Mayo clinic and many Canadians come down here to have hip/knee replacements done because they complain how long if ever they can get it approved in Canada. Also I think that MRI’s ect..are done by doctors to make sure that they don’t miss something and end up being sued by some lawyer. Tort reform should have been included in this bill, just one of the many flaws. Medtronic just said this bill may cause them to lay off thousands of workers to cut cost.
RLEdgar- “HOw can an MRI cost $98 in Japan”?
There was a good Frontline show about some of these issues . Yes the gov can step in and limit such costs, but that sort of thing SHOULD happen by competition in our country but we all know that it does not, we know that costs for MRI will not become competitive through the free market, so maybe someone should start to look at why not. We don’t want gov control but we would like to see free market work as it should.
Interesting comment, java12jack. But I have to wonder, if other countries can provide universal health care and still be competitive with us, why can’t we provide it for our people and be competitive with those other countries? My guess is those other countries exercise strong cost control while in the U.S., if our kid hits his head on the swing set at the park, we think a doctor should be standing by right there with an MRI machine. We also pay much higher prices for health care than people in other countries.
The question here is: Who is the market? My answer is: It is an amplifier of future expectations and therefore probabilities. It will NEVER get the economic picture right. Is it a game? Who knows. Even if it is a game there are rules. There is more probability to be successful in this game if the player knows the rules and plays well. We are all asked to obey the rules and make EDUCATED GUESSES. My point here is the market is an uneven SUM, the market is unbalanced +1 and -1 never 0. We should take this unbalance to our advantage. Hard to do, for everybody, when feelings are in the game.
Jim
I would be interested on your thoughts about companies like Cat., Deere, Verizon to name a few who are saying that the new healthcare bill is going to cost them not only money but a competitive advantage globally. This quarter many say it will effect their EPS numbers. I can’t believe this is going to be a positive for the market moving forward. Would like your insights.
I try not to think much about the year over year comparisons for my portfolio. I like to look back to Jan.2000 when I first invested, the first couple of years were tough, but in the long run until the (hopefully) March 09 bottom I managed to be ahead 63%. But, even know I still get frustrated at times.
I totally agree too. It great to listen to Jim’s advice!
I’ll second that
The stories here are very interesting to read, but I’ll spare you mine. They reminded me of a quote by Warren Buffett: “The most important quality for an investor is temperament, not intellect… You need a temperament that neither derives great pleasure from being with the crowd or against the crowd.” Known for his wit, he also supposedly said, “We’ve long felt that the only value of stock forecasters is to make fortune tellers look good.” My take on Cramer is that his personality supports a brash investment style that would never work for somebody who is more patient like Buffett. There are many productive styles, but for your own sanity you need to match your gurus to your personality. For that, I am ever-grateful for Jim’s work!
If most investors think things are really bad, and in spite of that the market keeps going up straight as an arrow, what will happen when they come to a realization that things aren’t actually as bad as they think? Will the markets rise up another 70% in a few months?
There is a point in greedibanks comment which I think is very important – perhaps almost critical. If the small investor doesn’t have some place to go for good advice and tips on a regular basis, then the crap hits the fan, they become too emotional and are likely to make all the wrong decisions. Heck…it could happen anyway.
I listened to Cramer every night during the meltdown and it helps keep me somewhat rational AND in the game.
Now that Jim is back, I hardly watch Cramer. Although I’m looking forward to the day where I see a picture of Jim Jubak on his site with a bulls head that he tore off – sticking out of his mouth.
I am in for the long haul. I make judgements on what I think will work. You could say at any point what any of us do here is a gamble. No, I did not KNOW that the market was at a bottom, but all the signs that I had learned over the years were there. I hope you do not get the notion that I portray myself as heroic. I am not. I pointed out FCX because it is a terrific company that was priced so low that there WAS NO gamble about it. I was not buying with the notion that it would be back in a year. I was lucky in that sense that it was a year. But. I knew then and I know now that it would eventually. Sam Stovall has published data showing recovery periods for bear markets and this one is no exception. Even the speed at which it returned is not unusual. The only exceptional thing about it is that it is the worse WE have lived through. It IS following a pattern similar, as Solomon would say, to that which has happened before. And by focusing on the sectors with the good trends, as Jim Jubak points out, will allow you to grow while the market itself looks incoherant.
Also, [which I guess makes me a contrarian] I also believed that the govenment stimulus does have an effect, and that gave me some confidence. I know there are a lot of people here that will gafaw at that, and point out problems that it will cause. Maybe. And besides, problems are opportunities.
BTW mopama,
Yes our feelings are flawed (as far as investing in the stock market is concerned), every study shows that if you follow your feelings you are going to get creamed in the market.
But davcbr, I would ask, how did you know that the market would come back? If you didn’t know (and who really did), then you were just…gambling. Which is OK but recognize that it was gambling, because as students of history know, the Great Crash did not lead to an immediate reversal but led to years of continuing declines. So it’s not just morbid fear that could keep people sidelined, but a real danger of truly serious losses. Hence, again, although it was very heroic or brilliant of you to buy FCX at 22, how do you know market will recover ina year, or 2 years or 4 years? Answer, you don’t, so it is… a gamble. That said, I also gambled by putting money to work in August and Sept last year, and recouping some losses (yes I made some bonehead sales in Jan. Feb of 2008!). Jubak helped get me back in when he returned to doing his column, otherwise I might still be on the sidelines…
I saw the original report about the 70% and all and I had to wonder if people are really looking at the year or if they are comparing their portfolios to before everything went south (like at the top of the last bubble).
Personally I got out (sort of out more like 55% to cash) a little late, and came back a little soon (November to December for say 25 to 30% of what I took out), and 90% of what I took out by May.
And beyond any doubt, since I track all of this in Quicken, I’m much better off now then a year ago.
I too feel trepidation at this point, but I think that the past couple of years has been an experience that has given me a sense that I can affect what is happening to me. Over the years I have read all I can about investing and trading. And I have heard the advice to buy when there is blood in the streets. In the fall of 08, I had lost about 50% of my value. Everywhere I looked, on various sites like Marketwatch, people were fixated on “this is the end” I was scare, but thought there was little to lose at that point. So I bought some PBR, MTP [ energy LPs ETF] and some bond ETFs. At the end of the year I noticed FCX at 22 and bought a chunck of that. During that march I decided to go more into energy with BP and FRO.
Most of these were directly or related to Jubak’s picks that I had been reading about. But what stays with me is the experience of having faced the market and seeing it for what it is, and acting with my brain. I KNEW this was a once in a life time chance. To me, the points at which I bought seemed obvious, once I gort the smoke of other people’s doom out of my eyes.
I had a nice trend line from 2000 up to the crash [since I was heavily into energy, I went down later than when the Dow peaked] and now I am right back on that trend line, up 6% for the year. I do not know how I could instill this in anybody; I can only relate that you CAN overcome the emotions. It requires a huge effort.
I agree with ponymagic, a bubble burst is exactly what it is – a burst. You have no time to react, and before you blink, it’s all gone. While inside a bubble, all most people see is the bubble, and that’s why it hurts when it collapeses.
Right now, we could very well be in another bubble. I missed out totally on all the market gains over last year, and I am so tempted to get in and make some gains at least. If most investors feel this way, they will eventually get in and inflate the bubble furthermore. If the stock market is a rough indicator of how well the economy is doing, right now it’s like as though nothing happened, we are back to where it was in early 2008. Would we get another crash and another rapid rise like we have now? One has to wonder…
I think the point of this article is useful, but the title is a little confusing. Maybe it should be “Were things as bad as most investors though they were?” I believe the market of recent past (just the last year) has certainly been a lot better than people think (if they’re not just remembering 2 years ago).
However, at present, I’m pretty darn scared, but it seems like the market is extremely complacent. Downside risks seem to outweigh upside potential for the rest of the year. It seems even Jim feels that (at least for the second half of the year) and has commented that we’re overbought. I know Jim has a portfolio to pick and he can still beat the market with good picks, but it’s difficult for me to invest in anything new in these circumstances. In the housing bubble, there were all kinds of signs we feel we shouldn’t have missed in retrospect. What is it now? Why do experts have such different takes on the future of inflation? By the time the signs are clear to all, it will be too late…
I was lucky in some respects. I missed most of the initial downturn. I was laid off back in 2007, and transferred my 401k, pension, and a previous IRA into a retirement brokerage account. Since that took awhile, I concentrated on finding a new job. I did, but then most of my time was spent working, and I was in no rush to start trading right away. My retirement money sat in a money market account for the duration of the collapse, so I never really got burned by it.
Finally, in April of last year, after the market started to show some signs of life, and I felt the worst was over, I hopped back in full hog. I had a good year last year.
Having said all that, I am VERY cynical on the market right now. It looks overbought and overdue for a major correction. It has Prince written all over it (aka “partying like it’s 1999”).
Folks, it’s the poll question that is flawed. People are remembering the value of their portfolio at the high and comparing that to the current value. At Dow 14,000, most portfolios were higher than now, despite a 70% rally. So when people are asked if they’ve made money in the last year, they are comparing their portfolio to the high point, which is the number stuck in their head. If people were asked, “did your portfolio go up over the last year, from the bottom?”, most would say, “absolutely”.
The media has a way to spin everything. It’s like those poor Californians in silicon valley who we were told “lost 40% in their homes in the last 2-years”, when the reality is they owned the home for 10-years and made 500% from the time of their purchase.
most people in this country (in the world for that matter) do not work in finance or as day-traders, so they do not check daily updates as much as the financial professionals (or people trying to be like financial professionals). In a sense, it’s almost like following one of the professional sports leagues, things change and teams go up and down, but you need to consistently follow it to be a pro. I do not work in finance but I try to keep up with the news. Having said that, I have a neighbor who works as a sports advertising agent and another who works as a portfolio analyst at Charles Schwab. There is no doubt in my mind they are better at tracking the professional sports leagues and the financial markets than me. Also, although different people tend to carry emotions to various levels, we all get emotional nevertheless, as evident from loud cheers when our favorite sports teams wins. Thus, when things are bad, people just tend to ignore that and put it on the back of their minds. In the end when the bull market returns, they tend to miss that too. As a hockey fan, borrowing from the Stanley Cup Playoffs into the financial markets, “Get Into the Game”!!!
The problem is the market is rigged fake fraud. It is run so big playes cane see all the cards in the deck, and the big banks rig the market in the direction they want the market to go to make rich, their rich friends, and the small investor who is struggling for a future is their food.
I think Jim would disagree. You can (And should) be a “sometimes” buy and hold. It all depends on the market..
As he says himself….
“Buy and hold? Not really. Short-term trading? Not by a long shot. So what is the stock-picking style of The Jubak’s Picks portfolio? I try to go with the market’s momentum when the trend is strong and the risk isn’t too high, and I go against the herd when the bulls have turned piggy and the bears have lost all perspective.”
Domino: Your analysis is pretty much correct. You can’t be a “sometimes” buy and hold. What will happen, as you discovered, is that the pain gets too great, sell and then you fail to get back in. You certainly are not alone.
I always thought that I had nerves of steel on investing. After the market dropped 20% I jumped in with both feet. then it dropped another 30% and I almost crapped in my pants. I’m back to even and with the additional amount I have been saving, slightly ahead. However, I won’t forget that feeling of last March and will always make sure that I keep plenty of dry powder so that my “nerves of steel” are less likely to go run and hide.
Wow! I am so glad I am not the only one in this camp of thought. After missing out on half the rally, then darting in and out a few times, taking a few losses,and selling gains too quick; I am only up a tiny bit and have been scratching my head wondering why I not up more than I am.
I am still not fully invested and keep waiting on that pullback to get in more. I see now that i should have just stayed pat throughout the whole crisis. maybe buy and hold aint such a bad idea afterall. I feel like I have sabotaged myself.
I love a guy who is optimistic! Great article…thanks!!
Sorry off topic.
panjwar:
I answered you in yesterday. I was too busy to write an even longer list for you. That answer is based on assuption that you are an American. But if you are from those self-deemed China’s competitor countries, I also have a long laundry list for you.
Jim,
Great article. It is not the market who is wrong. Investors are ALWAYS making the same mistake over and over. Are our feelings flawed? Should we invest with brain and not with heart? IMHO you are giving time after time great indications: The right side of the market! Thank YOU!