Two years ago, on March 9, 2009, the market bottomed out alarmingly. Almost immediately thereafter, rising from the ashes like a phoenix, was the beginning of the great bull market that shot into the stratosphere over the next two years. In fact, as of yesterday the US stock market is up 111.5 percent to within 5.3 percent of its all-time high on October 9, 2007. The US stock market is just above the 2007 year-end close, though many mismeasure using the raw S&P 500 stripped of dividends.
Birth of the Bull and CBS MoneyWatch
Two days after the market bottomed, I wrote my first piece on MoneyWatch, entitled Bear Markets Suck, But Don't Give in to the Pain. About that same time I did my first CBS video on Irrational Investing observing how we as human beings tend to act like performance chasing missiles in our investing. We zero in on what's up and what's down and proceed to do exactly what everybody else is doing, which also happens to be exactly the wrong thing to do.
New Paradigms - This time it's no different
Here is what I wrote while feeling the immense pain of my portfolio and those of my clients.
My instincts tell me that there's only one way to make the pain stop - sell the remaining half of my family's stock holdings and get out now. At the very least, that would spare me from associating the dismal market with the collapse of our savings.The last paradigm did prove to be just as silly as the rest.
So why don't I get out? Stubbornness perhaps, but there's also a logical method to the madness. New paradigms are all too common - just look at the following chart. The first three turned out to be pretty foolish, and I'm betting that the current one will too.
"This time it's different" has a lousy track record.
Year New Paradigm 1999 Bull It's a new age economy and cash flow doesn't matter. Stocks will go up forever. 2002 Bear The economy is in trouble. Stocks, having lost half their value, will continue to fall. 2007 Bull There is no problem lending money to people who can't pay it back because real estate values will always go up. The Dow will soon be at 40,000. 2009 Bear Capitalism is dead - get out of the stock market.
Long Live CBS and MoneyWatch!
I'd also like to tip my hat to Editor-in-Chief Eric Schurenberg and the brass at CBS for starting a common sense place for consumers to go to for real advice on money and investing. Starting up a money web site at a time when people would do just about anything to not be reminded of their dwindling nest egg took a lot of courage.
How I've changed my tune over the two years
Who could have known two years ago that the bull market would be so strong? Personally, the only thing I could say I knew was that our bias toward predicting the future based on the recent past was foolish. Neither good times nor bad times last forever. It is this recency bias that drove consumers to sell stocks two years ago and buy stocks today.
So I'm no longer advising readers to buy stocks like I was when MoneyWatch was launched. The half-off sale is over and never has the tried and true rebalancing worked so well. Those that Dared To Be Dull made a bundle. I'm still recommending rebalancing today, but that means selling equities to get back to your target allocation, which is why I've been urging investors to sell stocks. I've even resorted to using emotions myself, though as a counter-indicator, on why I think the market may be overvalued today.
I guess I've achieved my goal of becoming a true contrarian, or at least not having my advice ever be confused with that of Mad Money's Jim Cramer!
Happy two-year birthday to both the Bull and CBS MoneyWatch. Though the bull could slip away at any moment, hopefully CBS MoneyWatch will be around to help consumers for a very long time to come.
More on MoneyWatch
Stock Market Lows - Two Years to Double
Two Years After the Crash
Bear Markets Suck, But Don't Give in to the Pain
Dare To Be Dull Investing
5 Reasons the Stock Market is Overvalued