S&P 500 Virtually Doubles from Its Bear Market Low

Last Updated Feb 14, 2011 5:56 PM EST

The financial media often measure the performance of the stock market in terms of numerical milestones, and we just hit one of the most positive ones yesterday.

It wasn't quite two years ago when, on March 9, 2009, the S&P 500 Index hit its bear market low of 676. The index dipped as low as 666 that day, and having the number of the beast show up probably didn't stun many investors, given the personal hells many were experiencing at the time:
  • Jobs were being slashed.
  • Home prices were plummeting.
  • Billions of dollars of wealth (albeit, paper wealth) had been wiped out.
Now couple that with the bad news around the world and the talking heads, such as Nouriel Roubini predicting additional impending doom and PIMCO's gurus Bill Gross and Mohamed El-Erian predicting a "new normal." It's no wonder that so many investors had a bleak outlook -- with hundreds of billions of dollars redeemed from equity mutual funds. And it wasn't until the end of the fourth quarter of 2010 that we finally saw net cash inflow into equity mutual funds.

That's why positive milestones should be celebrated as they occur. Yesterday, the S&P 500 closed at 1,332, meaning the index has virtually doubled since its bear market low. (In another positive note, these index figures are price-only and thus don't account for dividends, so we've really done even better than doubling.)

The point isn't that we're out of the woods (smart investors know this is never the case), nor is it meant to minimize the tough times many are still experiencing:
  • Unemployment remains stubbornly high.
  • Our federal deficit continues to climb.
  • State and local governments are facing unprecedented deficits.
  • Housing prices continue to fall in much of the country.
  • Political unrest is spreading in the Middle East.
The point is simply that bad news shouldn't cause you to panic regarding your investments. Because so much of the markets gains occur over such short and unpredictable bursts, panicked selling typically leads to missing out on much of the market's long-term returns.

Perhaps you're one of the unfortunate investors who sold at precisely the wrong time. If so, consider this an expensive lesson in the importance of having an investment plan and sticking to it. This should serve as a reminder to ignore forecasters such as Roubini, Gross or El-Erian, for surely you will hear more clarion cries to get out of stocks. And remember Warren Buffett's classic quote: "A prediction about the direction of the stock market tells you nothing about where stocks are headed, but a whole lot about the person doing the predicting."

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    Larry Swedroe is director of research for The BAM Alliance. He has authored or co-authored 13 books, including his most recent, Think, Act, and Invest Like Warren Buffett. His opinions and comments expressed on this site are his own and may not accurately reflect those of the firm.

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