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moneysense.ca, 10/06/09
Stock market reward in two pictures
When I wrote about the risks of investing in stocks in two pictures, a reader (thanks Sampson) pointed out that I should also write about the other side of the coin — stocks can also rise sharply in a very short time period. That has been the case with the stock market in the past 90 days. Since hitting bottom on March 9, the TSX Composite is up about 40%.
![[The reward of investing through market turmoil: TSX Composite in 2009]](http://www.canadiancapitalist.com/images/2009/tsx_2009_upturn.jpg)
The S&P 500 is also up more than 40% since hitting bottom in early March.
![[The reward of investing through market turmoil: S&P 500 in 2009]](http://www.canadiancapitalist.com/images/2009/s_p_500_2009_upturn.jpg)
These pictures show why investors should continue to put money to work in periods of market stress instead of suffering from a deer-in-the-headlights syndrome. It is not pleasant to lose a chunk of capital as soon as it is invested but when markets do bounce back, investors stand to reap the rewards of enduring the pain of a bear market.
moneysense.ca, 10/06/09
Timing is so critical, but so hard to do it right. Unfortunately, many of us did end up having the deer-in-the-headlights syndrome.
CC. That advice only applies if you look at stock market investing in complete isolation. That said, you need to look at the “whole picture”. I was just laid off work in April (which wasn’t a big surprise as I was strongly tied into the manufacturing sector) which would have been theoretically an ideal time to “plough into the stock market”, but then would have zero cash on which to live.
I have the same argument going forward. The employment statistics shows that the “pace” of job losses in the USA has declined, but by no means is this an indication that the economy has turned around. Canada seems to be lagging the USA in this statistic as our job losses increased last month. But at some point in time, one would stand to reason that some of these people may pull out of the stock market in order to pay their bills. With this as a headwind, unless employment numbers miraculously turn around, I think we’re getting set up for another possible plunge…?
@BFM:
Timing the market isn’t easy but it is possible to beat buy-and-hold. One of the keys for me has been to use the broad market 2X bull ETF’s to ride upward moving markets.
There is no such thing as a perfect timer since much of the daily market movement is noise.
Fred
I sometimes forget the stock market is largely independent from the economy. That’s why these upward and downward swings often catch me off guard.
Fred,
You are making a large mistake, unless when you say ‘timing’ you are holding positions for only a day or two.
Those 2x and 3x funds are designed for day traders ONLY. If you want to ride the market, do yourself a favor and stick to the ‘regular’ funds.
“It is not pleasant to lose a chunk of capital as soon as it is invested but when markets do bounce back, investors stand to reap the rewards of enduring the pain of a bear market. ”
That’s true. And markets have always bounced back. But does that mean they will continue to bounce back or that the rise will be good enough? The past decade has not been good for the longs.
Mark:
With respect, let me say that I am far from making a mistake. It would appear that you haven’t visited my blog. My Canadian 2X ETF models are beating buy-and-holding by 57% annually and my US 2X ETF models are beating buy-and-hold by 64% annually. In both cases, the models are inherently less risky (as measured by the ulcer index) than buying-and-holding.
If you go to Covestor, you will see that my Canadian holdings beat the TSX by 39% over the past year. If that’s a mistake then I like making mistakes!
I have read countless articles about 2X ETF’s and how they can move in the opposite direction of the underlying markets. All these articles have been written by people who do not incorporate timers into their analysis and therefore their results cannot be compared to mine. I am aware of the issues with 2X ETF’s but my method of investing works very well for me.
Fred
Mark: I’m not advocating a 100% stock-only portfolio. What I’m saying is that if an investor has decided to hold stocks, they should invest through thick and thin. It is a fair comment that the past decade hasn’t been kind to buy-and-hold types. But such periods of lousy returns are not unprecedented. What I’m saying is if investors get excited and pile into stocks after they have run up and freeze up and stay in cash after they have crashed, they are setting themselves up for sure disappointment.
CC:
Jeremy Grantham expressed those thoughts in his March, 2009 newsletter which he titled Reinvesting When Terrified. Here is the link: http://www.gmo.com/websitecontent/JG_ReinvestingWhenTerrified.pdf
Looking at these graphs, it’s hard not to imagine there’s going to be a significant correction again soon. Gene (above) has a good point – I wouldn’t say the market is 100% independent of the economy, but it’s definitely not necessarily tightly correlated, and many have pointed out how it is often “ahead.”
[...] visual picture of the stimulus-led recovery, check out the graph Canadian Capitalist posted on what the TSX has done in the last 90 days (since March 9, 2009). Tweet This!Share this on TipdShare this on PFBuzzStumble upon something [...]
[...] Did you abandon your portfolio recently? Canadian Capitalist notes that you may have missed out on what has now become approximately a 40% bu… [...]
[...] Canadian Capitalist. Stock market reward in two pictures. “When I wrote about the risks of investing in stocks in two pictures, a reader pointed out that I should also write about the other side of the coin – stocks can also rise sharply in a very short time period. That has been the case with the stock market in the past 90 days. Since hitting bottom on March 9, the TSX Composite is up about 40%.” [...]
That being said, it’s certainly true that markets do go up as well as down. It’s amazing the runup that both the American stock market and the Canadian stock market have had since the trough. Of course, this is much more a factor of just how much they dropped (they have both climbed double digits in this past year).
[...] Canadian Capitalist. Stock market reward in two pictures. “When I wrote about the risks of investing in stocks in two pictures, a reader pointed out that I should also write about the other side of the coin – stocks can also rise sharply in a very short time period. That has been the case with the stock market in the past 90 days. Since hitting bottom on March 9, the TSX Composite is up about 40%.” [...]