Our weekly newsletter is up at http://bit.ly/dYRLsG . With all the chaos erupting across the world, we thought we’d ask…
What have you been thinking as you watch the violence in the Middle East on TV, the protests in US state capitals, and stock markets starting to show some weakness (S&P down -2.52% from its Feb high)? Have you been thinking about how well your portfolio can handle a crisis? Or hoping these events turn out for the best and don’t derail the impressive rally that began in March 2009?
It’s part of human nature to hope for the best. But it is much better for your financial health to prepare for the worst. Those thinking this time is different – this market is too strong – are usually those scrambling for the exits when things turn out to be not so different from other market crisis periods. Perhaps this is why Sir John Templeton is quoted as saying, “The four most dangerous words in investing are ‘This time it’s different.’”
People owning stocks are certainly hoping it’s different this time around, having come to enjoy the double digit annual returns stocks have provided over the past 24 months. On the cusp of the 2year anniversary of the March 2009 low, the S&P 500-stock index closed on Friday at almost double its closing low of 676.53 on March 9, 2009, and the Nasdaq is up over 112% from its low. This is a powerful drug to walk away from, with the allure of even more profits and upside leading to people hoping this time is different – instead of the more prudent planning for the worse.
So where are stocks going from here? Are we going to see continued upside to new all time highs (even if they are easy money inflated nominal highs)? Or is this just a bear market rally similar to what Japan has experienced over the past 30 years?
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