Did You Make Money in 2009?

Here’s an interesting article on Bloomberg yesterday. The headline reads:

"Americans Say They Missed 73% Rise in S&P 500 as Economy Surged"

The article sites a recent survey where only 3 of 10 people say the value of their portfolio has gone up during the last year. This is where things get ambiguous …since the S&P 500 is up considerably from the low hit on March 9, 2009, it’s clear that anyone that stayed invested at all is up from last year.

There are at least a few things to think about:

A. Did only 3 out of 10 people surveyed actual stayed invested?  In fact, according to the fund flow data, investors pulled over $254 billion during that time period, and since March 2009, only a fraction of that has gone back into Equity mutual funds (most stayed in cash or went into Bond mutual funds).

Once again, the investment public sells at the bottom & buys at the top – don’t “wait” for “things to get better”…the market tends to “climb a wall of worry.”

B. People measure from their previous high, not from the low in March. The survey asked if your portfolio had gone up in value in the last 12 months, but it’s possible that people were still thinking in terms of their all-time High?

Large losses hurt more than gains feel good; but the broader point is we often anchor to a value that is now gone and that will impact how we behave and might have impacted how people responded to this survey.

C. "Feel is not real." People’s portfolios really are up, but they just don’t feel like they are. This seems to be the conclusion of the article. This is a odd time; even people who stayed the course and are up for the last 12 months don’t seem to feel better.

Lessons – Investors natural behavior has shown itself again (selling at the bottom; missing a large up-swing in the market) – investing emotionally leads to poor decision making.  Investing, psychology, and behavior is a potent mix. We’ve weathered the storm well given we had a Plan in place. Tell your friends to be careful out there.