Instead of Makin’ Me Better, You Keep Me Makin’ Me Ill

Yesterday I stumbled across a ridiculous article on Yahoo! Finance called Retirement Guide for 20- and 30-Somethings. It was provided by SmartMoney and sponsored by Fidelity. Gee, I wonder what their expert financial advice is at this time? Let me guess. They want you to be fully invested in the market.

Both Fidelity and SmartMoney pay their bills by convincing readers of two things:

  • They are experts and you are not.
  • By not investing RIGHT NOW, you are missing out on great opportunities.

Once they’ve tricked you into thinking you are too stupid to save money, they then try and fill you with fear that you will die penniless living under the bridge in a cardboard box unless you put your money into the stock market RIGHT NOW!

What makes this particular article bad is the chart they use to support their thesis that you can’t time the market. Let’s take a look at the 4 examples they cherry-picked from the last 100 years of stock data.


Chart source: Ned Davis Research

That chart makes a good case for holding stocks in tough times. But that chart isn’t telling the full story.

  1. Market Crash ’29 – This is the most asinine case listed. The DJIA peaked at 381, dropped to 198, and then recovered to 294. Sounds good, right? Well, what they fail to mention in the above chart is the index tanked all the way down to 41 by 1932. So the investor who got spooked and left the market at 198 did far better than the buy-and-hold sucker. The DJIA wouldn’t see 198 again until 1946!
  2. Financial Panic ’87 – This was a widely reported case of computers triggering off auto-sell orders while the economy was still robust. I’m not sure how spooked the average investor got compared to recessionary times.
  3. Asian Stock Market Crisis – The economy was in full-tilt growth mode. I worked side by side with many day traders. No one cared. Pulling a financial crisis example from a non-recessionary time period is like saying your kids are well-behaved the week before Santa Claus comes.
  4. WTC / Pentagon Attacks – In the chart above they list a 25% gain if you bought after 9/21/2001. The DJIA was 8265 then. What happened after that spike? It tanked again. By Oct 2002, it was down to 7528. By March 2003, the index was still only at 7740. Again fixed income would have protected more money. With or without Al-Qaeda, it was a recession. Unemployment rises, earnings fall, and stock prices drop in a recession. This isn’t rocket science. And by the way, it is now 2009 and the DJIA is at 7850, which is lower than the 2002 recovery number in the chart.

Before someone critiques me as picking the lows to support the case for fixed income in a recession, let me say that it was SmartMoney‘s thesis that one shouldn’t try and time the market. If they want to pick these dead cat bounces as proof that throwing your money into the stock market at the early stages of a recession is wise, then I am free to look past the bounce to see where the market stabilized. That is a far more conservative approach. It also frees up your money for other investment opportunities.

I wonder how many thousands of people read that article yesterday and didn’t think to even look at a chart to see how each of those examples played out.


Add yours

  1. An expert is someone that makes a living for an accepted level of knowledge by the party paying them to say or write what they want you to hear.

    If you disagree with the expert you are nobody until somebody come along and says, “hey, let’s pay this guy to say because it is what we want people to hear!”.

    Some years ago, not many, a friend of mine wanted to buy a house and her aunt set her up with the top producer for a real estate firm. She ened up buying a house that was not right for her and when she got out of it the whol think cost her about $60,000.00 dollars.

    That top producer was still an expert as far as the firm was concerned because it produced a sell for the firm at the expense of my friend.

    I used to walk into my bank and they would try and sell me on the idea of buying the house I rent. They just wanted me to put up $60.000 down payment and then $3,000 a month house payment.

    Most months I never saw $3,000 but the bank would loan me the down payment and the money for the house. they didn’t care that i would loose the house in a month or two only that a loan is made.

    Even as the housing market was crashing experts were still saying it is “HOT”.

    The Stock Market is no different. Most people would prefer a fast buck and little or no work. So they turn to “experts” that are paid to say the market is “Hot” or “GOOD”.

    Stock brokers always make money because they handle the sell not the product and buying in the market doesn’t give you a product to hold just the promise of money as other people invest money in the same idea, very much like a ponzi scheme.

    In the Panic of ’87 at least one case was reported where a client walked in and shot his investor.

    Panics are just that a panic. If it is a true crash which happened more often in the late 1800’s large portions investments are wiped out across the board and devistated the economy always followed “Booms”.

    We have had the real estate boom where the market went up an unrealistic 10-15% a year. Now that we had the boom we are having the bust.

    The Great Depression was a reaction to a 6 month credit problem because most loans were only about 6 months long.

    Now we are trying to fix a situation where house prices are in some cases less then 50% of what they were and the interest and payment were to be spread out over 30 years. Until we come to term with the fact that hoses are not worth nearly what they were and that institutions will not collect the money expected over the next 30 years we will have problems.

    We could say, “ok, this is what the property is worth” and write the rest off as a lost cause and decide to put in more oversight and safety steps to protect dumb greedy people from smart greedy people and life would get a little better, slowly.

    By doing nothing it will just be prolonged as the Hoover Administration showed.
    You can find “experts” to say other wise but remember they are paid to say that. I’m just the son of a poor Iowa dirt farmer that reads a little

  2. Lies, damn lies and statistics. Apparently they are taking over for NAR …hurry and buy or you will be priced out forever!

    I am quickly coming to the conclusion that the world is run by clowns.

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