Did You Foolishly Lock In Your Losses?
Last year when the stock market had tanked badly I wrote about how I wasn’t worried and adopted the attitude of “wait.” I also accelerated the contributions to my Roth IRA for the year at that time as well.
Well, yesterday the markets closed at a point where they have recovered the 25% they lost between January 1 and the markets low point on March 9 and are now up for the year… yes, only a tiny amount but they are back at least where they were on January 1.
Could it gyrate up or down again? Without a doubt it will.
Now a possibly painful question… Did you lock In your losses by selling during that 10 week period?
Are you kicking yourself because now you might want to buy back in but can’t get back as many shares as you had with the money you got from selling because the prices are higher?
They say the stock market is a rich man’s game… that’s not exactly true… it’s a game for those who have time… time to sit back and wait… and not sell off no matter how bad it might seem.
It eventually comes back… and this is the beginning of a recovery from the third such market collapse I’ve lived through… with the market coming back stronger every time.
However, if you “locked in your losses” you became one of the true losers. Did you?
Photo credit: stock.xchng.
I think anyone investing in capitalizing industry should read the fine print “Past performance does not guarantee future returns.” Failing to do so is to misunderstand the meaning of risk, or turns it into somekind of magical gambling system. You may hope the market goes up, you may even be pretty sure, but you are never certain. Try some alternate historical examples:
Q1: In 1989, the Nikkei stock exchange was at almost 40,000 points. What’s its current value 20 years later? Take a guess before you scroll down or look at the chart.
See the Nikkei since 1970 – http://www.davemanuel.com/2009/04/16/20-years-later-and-the-nikkei-225-still-hasnt-recovered-or-come-even-close-to-recovering/
Q2: Not including the effects of inflation, would you have made more money in the Dow Jones stock market between the 20 year period of 1930-1950 or 1960-1980?
See the Dow Jones since 1900 – http://stockcharts.com/charts/historical/djia1900.html
Q3: Look at this long-term graph of the 2005 S&P index, where it says it’s closing at 1200. Judging from it’s long history, what do you think is more up-to-date value for the index? What did you use to make your guess? Answer at the end.
See the S&P since 1920 http://webdiva.ca/sp.jpg
1. Current value is 8977.
2. You would have lost money between 1930 and 1950. Boo! If you’d waited until 1932, however, you would have quadrupled your money. Yay! Between 1960 and 1980, you had to resist selling when stocks dropped significantly (once to less than what you paid for them). If you stayed the course and didn’t lock in your losses, you would have been part of an overall gain from 650 points to almost 800 for a total rate of annual return of about 1%, not including inflation which ranged from 5-12% through those decades. Blah!
3. S&P opened this morning at 900 points.