How We Stalked the Bear in the Year 2000
How We Stalked the Bear in the Year 2000
All major indices fell sharply from their all-time highs in the stock market shakeout that began in April 2000, only to be met with equally forceful bids to recover. Even mutual funds that typically move slowly acted as irregularly as tech stocks due to the extraordinary volatility of the ride.
My indicators suggested that the markets had entered a clear decline by October. From our protected vantage point, we observed the development of what is now widely acknowledged as one of the most devastating bear markets in history.
The markets had already crashed by April 2001, but financial journalists, experts, and brokers on Wall Street kept harping on the fantastic purchasing opportunity this brought. There was constant marketing to the naive public about "V" style recoveries, dollar cost averaging, and buying on dips.
After 9/11, the markets fell even further, and investors finally realized that the dos and don'ts of the 1990s were a thing of the past. It was common to hear stories of investors whose portfolios had lost more than half of their value.
Why are we bringing this up at this moment? To prove what I have been saying for the better part of a decade: that all investors need a systematic, objective strategy with well-defined buy and sell signals.
Investing is not the same as gambling if you purchase an investment without a plan to cash out if things go well or cut your losses short if they don't.
The past two and a half years have shown us that staying out of the market when times are tough is just as vital as being in it when times are good. Is evidence something you need?
Based on data collected from 1928 to 2002 and analyzed by InvesTech's monthly newsletter, it was found that the renowned buy-and-hold strategy could grow a starting capital of $10 into $10,957.
The finest 30 months would have cost you $154 if you managed to miss them. But if you could avoid the 30 worst months, your $10 would be worth $1,317,803! So, here's my point: Long-term compounding is severely affected if the worst times are missed. Sometimes, staying out of the market is the best option.
Curiously, even if you failed to invest in the 30 best and 30 worst months, your initial $10 would still have grown to $18,558—80% more than the buy-and-hold approach. All of this occurs because, in general, stock values fall more quickly than they rise.
The bear destroyed almost half of many people's portfolios because Wall Street and most individuals don't value loss mitigation. Those who followed my advice managed to avoid the brunt of the bear's attack.
Wow, that's cool!
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