"I'll Wait Until Things Look Better to Invest"
publication date: Aug 24, 2009
In the course of talking with lots of people, including friends, business acquaintances, etc. I lost track of how many people in late 2008 and early 2009 who told me that they were selling stocks and other investments and we're going to sit on the sidelines until things "got better." These worriers had plenty of help from the negative hype that was all around them which I wrote about extensively over this period. I even provided an inside look into how negatively spun stories are pitched to the news media.
And, now here we are in late August 2009 with global stock markets in a huge upswing and one of the economic forecasting firms (IHS) featured in my prior piece (for hyping and pitching negative stories to get media attention) is now declaring the recession as over. They sent out a "World Flash August 2009: The Global Economy's Deep Recession Is Ending" which stated the following:
"The longest and deepest recession of the postwar era has ended, and a new global expansion is beginning in the third quarter. After a 2.3% decline in 2009, the world's real GDP is projected to increase 2.4% in 2010 and 3.4% in 2011. Upward revisions to our forecasts of near-term growth in China, India, Germany, South Korea, Turkey, and the United States are partially offset by downward revisions to Mexico and Russia.
Following sharp contractions in late 2008 and early 2009, the world's real GDP stabilized in the spring quarter, as strong upturns in Asia's emerging markets coincided with moderating declines in the United States and Western Europe. Across regions, we continue to see gains in equity markets, purchasing managers' indexes, and confidence surveys. Massive inventory liquidations in the first half of 2009 have set the stage for rebounds in global production and trade. Financial markets have stabilized and investors' appetite for risk is returning, although credit will remain relatively tight as banks rebuild their capital positions."
Now, the folks who panicked and sold stocks late last year and early this year have missed out on the huge global stock market rally that has ensued (see our two-year charts for some perspective). Remember - smart stock investors are always looking years into the future which is why those who wait until it's obvious that conditions are improving miss out on big stock market gains.
The rebound that stocks enjoy after the ending of a bear market is usually substantial and quick. Consider the following analysis by veteran money manager Ken Fisher which shows that in the 12 previous US bull markets, stocks roared ahead an average of 30 percent in the first six months. And, the second six months, which averaged returns of 17 percent, have never produced negative returns, even if gains during the first six months were huge. Fisher also points out that the bull markets with the strongest initial returns have sometimes had the strongest returns in the following six months as well.