Lessons Learned from Stocks’ Rough Ride

10/05/2009 12:01 am EST

Focus: MARKETS

Terry Savage

Author, The Savage Truth on Money

There’s a kind of masochism in “celebrating” the one-year anniversary of Wall Street’s collapse.  Yet that’s what the media has been doing for the last couple of weeks—recounting the scary stories of Fannie, and Freddie, and Lehman, and AIG, along with Congress’s rejection of the original $700-billion bank bailout, and the day the market lost a trillion dollars—September 29, 2008.

Funny what a little perspective does for you: Even $1 trillion seems cheap in hindsight! Why, that’s only half our federal budget deficit for this year. And it’s only a drop in the bucket compared to the losses that came next, not only for stocks, but derivatives holders and real estate lenders.

And we survived! There’s a lesson in itself. Not that we’d want to look over the brink again. The horror, the horror! With apologies to Joseph Conrad’s Heart of Darkness, now I know how Marlow felt as he peered into the abyss.

But we made it through. In fact, although hindsight is 20/20, it might be worth a look back—if only to impress upon ourselves the lessons we learned, or should have learned, from the incredible year we’ve been through.

The Dow Jones Industrial Average is now down slightly more than 10% from where it was 52 weeks ago—but up nearly 50% from its 12-year closing low of 6547.06 on March 9, 2009. And it’s up just over 10% so far this year.

So, what are the stock market lessons you learned?  

If you were panicked into paralysis, you didn’t suffer so much in the end, because the market did rebound. Is “buy and hold” the lesson to be learned? 

If you were following a market timer, will you be renewing your subscription?  (With the exception of Jim Stack of InvesTech Research, who loudly called the bottom in his March 13th issue, few come forward to proclaim their successes.) 

And—be honest now—did you fall victim to your own panic, selling when things were darkest in February? Have you bought back into the market since? If you haven’t, are you cursing your own timing?

If you were “diversified” and everything fell apart, does that shake your belief in asset allocation for the future?

And if you thought it was the “end” for the global financial system, did you question why the world came running into dollars, pushing even the price of gold under $800 an ounce? 

We all have breathed a sigh of relief. Free markets worked—with a “little” government help. But having learned that lesson, we now have a new question to ask: How much is too much “government help”? What will the markets be saying about that a year from now?

Please share the lessons you learned from the market in the past year. And feel free to make your forecast for the new lessons we’re likely to learn in the year ahead! Please post a comment and join the conversation.

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