Dear Stock Market, Please Marry Me


Last week was Wall Street’s best in almost two years, with the S&P 500 jumping 5.6%.

Talk about a relief rally.

A gain of 5.6% in a week is huge. To put it in context, the S&P/ASX 200 gained around 7% for the whole of our last financial year.

One of The Motley Fool’s mantra’s is “you can’t time the market”. Miss weeks like last, and you’ll likely substantially under-perform the returns of the index.

The majority of individual investors lose to the market, badly, each year and over time. That’s well documented. One of the reasons they do so is because they don’t stay the investing course.

Investing should be a lifelong endeavour. Before you take the plunge and buy your own shares, you should commit to doing so through thick and thin, in sickness and in health, until death (or dementia) do you part.

Back in the “good old” pre-GFC days, we lost count of the number of tips we received from well-wishing friends.

Inevitably, the tips were for highly speculative, penny share, micro-cap exploration companies who were supposedly sitting on vast reserves of gold, iron ore or oil.

Ending in tears

You can guess how it all ended…in tears, of course. The GFC was the catalyst, but if the GFC hadn’t given these ‘investments’ a quick death, most would have died a long, slow and natural death of their own accord.

No-one likes losing money. The GFC was a scary time for all investors, bar none. In hindsight, we can all easily sit here and say last 2008 and early 2009 were fantastic buying opportunities, but at the time, none of us knew if and when the carnage would end.

Only the brave were buyers, and they’ve been suitably and deservedly well rewarded. Sellers abounded, some because they just wanted to end the pain, others because they were forced (usually because of margin calls) sellers.

Whatever you do in life, you never want to be a forced seller of anything, be it shares, property or your soul. Who’d be a forced seller of a Gold or Sunshine Coast investment property today? No thanks.

Divorces aside, excessive leverage is usually the culprit behind forced selling. Too much debt can wipe out what at the time might have looked like a no-brainer investment decision. ABC Learning, Allco Finance and Centro Properties Group (ASX: CNP) anyone?

Quick wipe-out

Back to our friends and their hot tips. We remember one friend who bought his first ever shares just before the GFC came along and virtually wiped out many small-cap exploration stocks.

We’ll admit a super-quick 90% loss might put most people off the stock market for a period of time. But my mate went one step further…

He swore off the stock market for life.

It might be the biggest mistake he’ll ever make. Not only did he sell right at the bottom of the market, just before one of the biggest stock market recoveries in history, but he said good-bye to historically one of the best long-term wealth creation asset classes ever.

On average, the Australian share market has gained around 11% per annum since inception. Some years are better than others. Some periods are better than others.

No bull

We’re not unadulterated bulls here at The Motley Fool. The S&P/ASX 200 is trading at the same level as 2005: that’s six years of zero per cent capital return.

Taken from the October 2007 peak, the market is down over 30%. Worse, the U.S. market, for all its ups and downs, has done nothing over the past 12 years. Japan’s market is truly a disaster.

But we are optimists. History teaches us some important lessons. Those of us who’ve actively invested in the markets over the past decade or more have learnt some valuable and often costly lessons. Try two booms (dot com and property) and two busts for starters.

But it’s too the future we must look. Nothing is guaranteed in life, the stock market and the universe. As we sit here today, we are likely in that happy medium between bust and boom – the Goldilocks economy, not too hot, not too cold, but just right.

Wall of worry

The doomsayers will say differently. They always do. If it’s not Greece, hyper-inflation, a U.S. double dip recession or the carbon tax, it will be something else. They don’t say the market climbs a wall of worry for nothing.

The great thing about the stock market is there are always opportunities to profit, whatever the economy, whatever the level of the market. Just ask investors in uranium explorer Extract Resources (ASX: EXT) and upstart biotech Mesoblast (ASX: MSB), up around 900% and 500% respectively since the top of the market in October 2007, what they think of the stock market.

Investing can be rewarding. It can also be intellectually challenging and fun. But you’ve got to stick at it, preferably for life. And with valuations of some selected blue chip companies now looking quite attractive, now could be a great time to reaffirm your investing vows.

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