A few weeks ago we noted the 10-year anniversary of the stock market low of March 9, 2009. As one might expect, others have considered this too from various perspectives. The most insightful I have seen yet is “How the Financial Crisis Has Affected Individual Investors 10 Years Later,” by Charles Rotblut in the April issue of the AAII Journal.
I do not recall when I first joined the American Association of Individual Investors, but it probably was in the early 2000s when the annual national conference was held in Kansas City. It has been well worth the price of the lifetime membership I purchased. (By the way, it was much more than is now offered at $390. A single-year membership is $29 and it carries a 365-day, money-back guarantee! If you are a do-it-yourselfer or just want to be more educated without advertising distraction, it is a good value.)
Members were surveyed in recent months about changes in attitudes and actions they experienced since 2009. Even though these are folks who obviously pay some attention or at least spend money to do so, 88 percent admitted to changing their approach, strategy or viewpoint about investing. The majority, 53 percent, said they did not pull out any or all of their money in stocks or stock funds during the entire bearish period.
A minority of 12 percent said they had never fully re-engaged into stocks. A few more, 17 percent, said they remember being quite emotionally upset by the crisis. Only 7 percent reported having invested more during the slump. Forty percent described themselves as more conservative because of their age, not because of the crisis. Interestingly, 13 percent became less tolerant of downside risk, but 18 percent said they were now more tolerant and patient with market drops.
As we now near the all-time stock market index highs of September 2018, we may gain some wisdom from their observations and conclusions. One gentleman, who had invested his inheritance just before the October 2008 crash, had finally changed his portfolio by selling the worst performers and immediately buying the strongest, safest stocks he found. In retrospect, he found more good than bad in his selling and redeployment.
Of those who did sell some or all of their stocks, 60 percent said they reinvested later in 2009. Another 18 percent returned in 2010. A few percent waited until 2011, 2012, 2013 or later, 9 percent in total. Almost half of respondents claimed no regrets in their decisions of that period. Of the 44 percent admitting regret about their decisions, almost half (21 percent of all respondents) regretted not investing more during the slump between late 2007 and early 2009. Some wished they had more cash at the time with which to invest in stocks.
One man had put a third of his portfolio into fixed income (bonds) and directed half of his new investments to fixed income to achieve a popular 60/40 split between equities and bonds. He now describes those as serious mistakes. In 2011, he returned to a 100 percent equity allocation. He says, I learned the hard way that recoveries happen reliably and sooner than people expect. I’m now a hardened buy-on-the-dip advocate.
At some point, the next major bear market will begin. When and why is always open for debate. What I know from 37 years of financial management is that one can usually take advantage of these slumps by a combination of patience, flexibility, contrariness, and faith in both human nature and capitalism. Investing over the intermediate and long term often pays great dividends. Not investing – not so much!
(Advice is general in nature, not intended for specific situations. The writer receives no compensation or advantage from AAII.)
Ron Finke is president of Stewardship Capital in Independence. He is a registered investment adviser. Reach him at firstname.lastname@example.org.