Wednesday, June 24, 2009

Stocks: The Lost Decade

The article from BusinessWeek below is very interesting. I have included the entire article below. I would love to hear some dialogue in the comments about what all you BadskiBlog readers think about this article.

There are still six months left in this decade, but it is not too soon to start drafting its obituary. Howard Silverblatt, senior index analyst at Standard & Poor’s, is already looking at the decade’s stock market legacy. It’s ugly. The S&P 500 is down 39.22% from Dec. 31, 1999 through Monday’s close.

“We need a 63.79% advance just to break-even for the decade,” Silverblatt says. That’s not going to happen by Dec. 31. “The last negative decade was the 1930s, -41.77%,” according to Silverblatt. Annualized, stocks lost 5.12% so far this decade; in the 1930s decade of the Great Depression they lost 5.26%.

When this decade started, the talk was about sure-thing tech stocks and worries that the Y2K software bug would set the world back to 1900. The computer clocks entered the new millennium. The tech stocks broke down within 90 days.

Some people said we should call this decade the oughts, for the two zeroes. The term didn’t catch on. Looking back, it is clear that the real oughts of the 2000s were that we ought not to have paid so much for internet stocks and that we ought not to have paid so much for big houses with granite counter-tops.

Now we know that it was a lot easier, and cheaper, to fix the Y2K bug before a calamity than to fix the stock, housing and credit markets after. To our regret, we were more skeptical of computer programs than the “efficient” markets we wanted to make us rich. Nerds win. Pigs lose.

When I read this article a part of me wants to cringe. I have done all of my investing during this decade, so to read the sobering statistics above is troubling to say the least. Hopefully you can tell from my posts that I am an optimist. Continuing with the optimist mentality, I have saved what I consider a significant amount in the second half of this decade considering my first two years of investing were during college and the last three have been starting out living on my own. Even with all those losses I still feel as though I have been successful in accumulating wealth. If you keep more than you spend and invest for the long term it doesn’t matter what your return is. Sure it sucks that stocks are down but it is only a matter of time until you reach your goals, even if you are taking a paper loss. Who knows the next decade could be a 10% annualized gain decade. You cannot time the market and you cannot control the return that the overall market bears. So control how much you save and let time value of money work its magic while you accumulate wealth.


Cameron Schaefer said...

I always have to remind myself of two things with investing. 1) You haven't lost or gained any money until you actually sell an investment 2) As long as the market is down you're picking up shares at a discount.

Over the past year I've been basically getting 2-for-1 on shares of mutual funds, meaning a year ago I got 5 shares of mutual fund x for $100, now for the same $100 I'm getting 10 shares.

I'm actually hoping the market stays down for the next year or two so I can accumulate a bunch of shares before it goes back up.

Whenever people feel depressed about the market I take it as a signal to buy everything I can and whenever people start gloating about how great the market is doing, I get scared and invest more cautiously.

Matt Bader said...

Very wise my fellow contrarian. The greatest contributor to future gains is always time, so I am thankful that we are young. Regardless my mutual funds provide me with a vehicle I need to save/invest for the future, even if their current value has decreased. All is well in the investing world of Badski. Thanks for the comment and I hope all is well.

Anonymous said...

Time cures most ills. Don't carry revolving debt (use credit cards for miles and pay off entire balance every month). Pay down your mortgage early to develop real equity, be very careful on what cars (and how much car) you buy to get best value. Invest in good companies that actually make good products and/or services rather than quick hit paper based companies (ie: financial ponzi companies) - enjoy the money you make and live well (this does not mean live high on the hog), but steady consistent investing using the above criteria works!