The calls all came in the evenings when the markets were closed.
The first one, on Feb. 23, 2009, came from a client who lived in the Maryland suburbs of Washington, D.C.
"I'm getting out," he said. "I need you to sell all my stocks."
It was hardly the first conversation I'd had with him about selling, so I wasn't surprised. The headlines about the markets and the economy were dire. Many people worried that the U.S. might fall into a second Great Depression.
The next evening, a client in southwestern Virginia called - a woman whose money I had managed since 1990 for no charge because we were close. She wanted out, too.
The following evening, a client in Ohio told me to "sell everything."
These were the only three of my clients who jettisoned their stocks. Still, it's fascinating to me that they all lived in separate states, yet they all bailed on consecutive days. In our interconnected world, we're all tuned into the same buzz.
Our emotions frequently play havoc with our judgment about our investments. I wish I had possessed the confidence to persuade the three to stay in stocks. I wish I could have found the right words. But, to be honest, I was near panic myself. I had talked each of them out of selling several times before. They blamed me for the losses since then, and why not?
"Suppose I'm wrong," the little voice in my head kept repeating. "Suppose this is another Great Depression, when the market plunged nearly 90% over three years. What makes me so sure of anything?"
I felt certain of nothing.
If only we could have known that we were just two weeks from the end of the worst bear market since the 1930s, marked by a 56.8% plunge in the Standard & Poor's 500-stock index. A new bull market was just over the horizon - a record-setting bull market that would last at least 10 years.
All of which goes to show that, when it comes to the stock market, our hindsight is a heck of a lot better than our foresight.
10 Years of Gains, But Fear Always Remained
A rocky but immensely profitable bull market has rewarded those who stayed in stocks.
Since March 9, 2009, the S&P 500 has soared a cumulative 306.3%, or about 15% annualized.
Unfortunately, my three clients who bailed at the bottom took many years to believe the current bull market was anything other than another head fake. One still owns no stocks. All have 10-year returns that are pitiful compared to the index.
That said, it has been a weird bull market, pockmarked with frequent selloffs that have scared many investors away from equities.
I myself turned bearish late last November, trimming many clients' stock holdings by 5% or 10%. I was wrong, but I was hardly alone. This bull market, like the bear market that preceded it, has reminded us of the perils of all market calls, even modest ones.
Market strategist Ed Yardeni says the current bull market has suffered from an appallingly high 62 "panic attacks," a subjective category in which he includes mini-corrections, as well as the six times in this bull market the S&P has dropped 10% or more.
"There is a widespread notion that corrections are normal and healthy occurrences in a bull market," he says. "If so, then we reckon the bull market has been recharged more than any other."
But this odd 10-year-old bull market (and the bear market that preceded it) have delivered some valuable lessons.
So, what have we learned?
4 Vital Lessons
Stay in stocks. The key lesson is to stay invested in stocks, in some way, no matter what. That's a whole lot easier to say today, after 10 good years in stocks, than it was 10 years ago, when the financial system looked like it was headed straight for oblivion. Remember, too, that the 2007-09 bear market was preceded not long before by the 2000-02 bear, in which the S&P plummeted 49.1%. Consequently, many investors who had first bought stocks in the late 1990s were underwater for years after the current bull market began. But those who waited were made whole and then some.
But don't overdo stocks. If you started investing in 1990 - say, when you were 30 years old - you're pushing 60 today. Bromides like "invest in stocks for the long term" aren't as appropriate as they were then. You're probably planning to retire at 65, and you may not be able to afford another 50% haircut on your stocks. Instead, pick an allocation of stocks to bonds that makes sense for you. My default allocation for investors approaching retirement is 65% stocks, 35% bonds. In the early and middle years of retirement, I often favor an allocation of 60% stocks and 40% bonds.
If you trim stocks, take baby steps. I've been investing since 1982, and I have learned the folly of "selling everything." Trimming stocks a bit last November is a whole lot different than selling everything, as I did just before the 1987 crash. I've found that investors - such as the three at the beginning of this article - who sell everything have a terribly difficult time getting back into the market. I get a call roughly every month from an investor who bailed out in 2008 and is still waiting for the right moment to get back in.
Don't expect returns like we've had the past 10 years. Stock valuations, by many measures, are still somewhat inflated. That means the path ahead over the next 10 years likely won't be an easy one. My own estimate is that stocks will return 5% to 7% annually over the next five to 10 years.
But I can say this for sure: We're nowhere near any extremes of pessimism or optimism just now. Many are surprised we bounced so quickly off the Christmas Eve lows. But no one has called me up wanting to sell everything, or buy everything. Especially because valuations aren't nearly as stretched as they were, we may just kind of bungle along for a while, and the bull market may continue celebrating birthdays.
One last detail. Yardeni points out that the bull market isn't really 10 years old yet. Why? Because the market last hit a record high on Sept. 20. If we fail to top that level, then slide into a bear market, the bull will have ended officially on Sept. 20, 2018 - after only nine years. To hit 10 years, we must eclipse that record.
When it ends, though, watch out. Jim Stack - editor of the InvesTech Research newsletter and my favorite market prognosticator - says every bear market but two has seen a loss of at least half of what was gained in the previous bull market.
The market is a wonderful teacher. The lessons, however, aren't always much fun. The markets will play havoc with your emotions. Thus, acting based on your gut feelings is almost always a mistake.
Steve Goldberg is an investment adviser in the Washington, D.C., area.
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