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October 16, 2009


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Yes, I missed the ride-up.

My market timing failed. The market bottomed in late 2008 (if we leave out financials), at a time the economy had only begun to shrink. I still can't believe it's over yet.

I don't know if it was luck or what, but as the market started getting lower and lower I started increasing my 401(k) contributions.

I was fortunate enough to be at my max contribution around the bottom and enjoyed riding the wave all the way back up!

What many of my friends failed to understand about their 401K balances is that the numbers weren't "real". Unless they were planning on retiring in the short term, the huge balances they saw in mid 2008 weren't really a profit, merely a potential profit. My wife and I have been putting money away for a decade or so, and actually tracking what our contributions were, so when the market went horribly south, we still didn't see much of a "loss" vs. what we'd invested. We stuck to our long term plan, continuing to contribute while prices dropped, and now we're seeing our balances recover nicely. As per our plan, when we get to be much closer to retirement, I'll slowly shift my asset allocation to a safer mix, and when the market sees another - inevitable - downturn, we'll probably not notice.

Missed? No. Gained a heck of a lot more since we kept putting money in? YES.

I didn't miss the ride up, but I wish it would have stayed down longer! This is my first full year of really pumping money into my retirement accounts, so I didn't take much of a hit at all when it went down and I was trying to invest as much as possible before it recovered. Ah well, the contributions continue.

I just eclipsed the max my 401(k) had last year prior to the drop.

I sold everything when the DOW was around 12600 in 2007. Contrary to what that article states, when you miss a 50+% drop, it's not that hard to go back in, because even if you're early, you've missed so much of the drop that relative to everyone else you're way ahead of the game. I day traded some stocks in November, got back out when they were up 40-50% (in hindsight I should have stayed in things like Ford and Citi for the long haul) and then put everything back in when the DOW was under 7000. My investments went up about 50% and I got back out about 3 weeks ago because I am fairly certain we'll have a double dip recession. Even if I'm wrong and the market continues to climb, I'm up about 100% in my stock investments over the last 2 1/2 years.

For those who spend every waking moment perfecting their careers and don't have time to look around and figure out what's going on in the economy (like our blog host says we should do), it probably is best to just stay in and keep investing. For those who want to actively manage their investments, it's not that hard to figure out what's going on.

Ya, I missed the freakin' ride, my butt got canned and I needed to preserve my remaining asset base, just in case the house didn't sell and we'd (my family and I) need money to actually live on.. Then my RSP was placed into a moratorium (still is) and we couldn't actually get access to the money anyways.. Great system we have here.

People deserve to be prosecuted over this stuff, but no one has been brought to account quite yet.

This time around, on purpose, I missed both the ride down and the resulting ride up.

Having taken maximum advantage of the Bubble that burst in March 2000, I am now content to doodle along in the slow lane collecting tax deferred and tax exempt interest on my CDs and Muni Bonds. When you have reached the magic number where you feel that enough is enough to sustain your life style indefinitely the slow lane is a nice quiet place to hang out and watch the traffic zoom by in both directions.

Everybody has ridding the ride up, whether they can see it in their bank account or not.

My husband and I feel for the people who were about to retire. They were definitely hit the hardest.

We're in our mid-twenties and kept contributing to his pension plan, my 401k, and the stock market as usual during the drop. We also maxed out the Roth IRA at the beginning of the year. Almost everything is back to normal and our Roth IRA is up 20% from what we have contributed overall. The crash actually will have helped us alot in the long run since I was buying my shares this year and at the end of last year at half I'm just going to cross my fingers that it doesn't crash again in 27 years when we retire. By then, we definitely won't have 90% of all our 401k and Roth IRA money in stocks, so hopefully it won't hurt much anyway...

I gritted my teeth and left my money in the market through the entire roller-coaster ride. My company matches 4% on my 5% contribution, so with that instant 80% ROI, I wasn't losing money. Now, as the market has shot up, so has the value of my holdings. I actually increased to 8% being taken out of my check during the downturn - I love buying stocks on sale!

What kind of stunk for me was that my company stopped the 401k match in Feb of this year. I kept putting in the same amount, but it could have been more purchased at the low prices if the match was still present. Oh well, I'd been getting the match for three years before that, so I got a lot of good out of it.

For those who consider the match "free money", it's really not. It's part of your compensation package that includes your pay. It's what you get in return for the work you do for your employer. So when I lost the match, I considered it a 4% pay cut.

Old Limey -- Wonderful! So glad to hear from someone who knows enough not to be heavily invested in volatile stocks when near/at/in retirement. I wish more retired and nearly-retired people out there would have educated themselves as well as you have.

Crystal -- Please take a page from Old Limey's book. I understand your sympathy for those people near retirement that got whacked, but if they'd done what he did and reduced their investments in highly volatile stocks as they neared retirement they'd be sitting much prettier now. At the very least, don't let it happen to you and your hubby those 27+ years down the road.

Dar -- We plan to have very low risk investments near retirement. No worries. :)

Yes, I missed the ride up because I decided to buy a house in the down economy instead of using my money in the stock market.

I did the same. The house's value, though, has gone up a fair amount as the ride up has commenced. So there's value there, too.

Pop wrote:
"I day traded some stocks in November, got back out when they were up 40-50% (in hindsight I should have stayed in things like Ford and Citi for the long haul) and then put everything back in when the DOW was under 7000."

Pop - I'm a little confused because I thought that one of the tenets of day trading was that you hold no positions at the end of the day. What do you mean when you say you "got back out" and "back in"?

Oops, bad engrish grammar in previous post.

Are people really putting new money to work at these levels?

Hi Financial Samurai - More bad grammar I'm afraid - It's not 'engrish' it's 'english'.

Goldman Sachs sold at the top and bought at the bottom. They do it over and over again. Their trading desk only had 2 days of losses in the entire Q2 2009. How do they do it? Inside Trading?

I stayed in and I'm glad I did! Cashing out in march would have been a disaster. I increased my monthly 401K contributions in late 2008 so it worked out fairly well for me. I do wish I could have invested more in march, but at the time I certainly couldn't be sure things were NOT going to get worse, so I stuck with the dollar cost averging strategy.

Pop wrote:
>it's not that hard to figure out what's going on.

Really, you understand the entire economy? If so you should open your own hedge fund and become a trilliionare. Alternately, you may consider the possibility that you got lucky, and that luck can turn quickly.

After making such huge gains, do you still need to take the risk of mis-timing the market?

-Rick Francis

Regarding FMF's statement :--
"That's why I keep invested in the market and continue buying -- because I think the stocks I purchase today will be worth a good amount more 20 years from now, I can't predict when the big jumps will happen, and I don't want to miss any part of the ride up."

I used my proprietary database of funds, ETFs, and market indexes to see what the last twenty years produced between 10/16/1989 and 10/16/2009.

Nasdaq 100 ........... $1,000 ==> $7,720
Nasdaq Composite $1,000 ==> $4,678
Dow Industrials ....... $1,000 ==> $3,755
Russell 2000 ........... $1,000 ==> $3,617
Wilshire 5000 ......... $1,000 ==> $3,368
S&P 500 ................. $1,000 ==> $3,171

There were two major peaks in the averages, the first was 3/27/2000, the second was on 10/31/2007.

Nasdaq 100 ... 224 on 10/16/1989 ---- 4704 on 3/27/2000 ------ 2238 on 10/31/2007 ------ 1739 on 10/16/2009
Nasdaq Comp 461 on 10/16/1989 ---- 4950 on 3/27/200 -------- 2859 on 10/31/2007 ------ 2156 on 10/16/2009

Dollar cost averaging over 20 years by contributing to a 401K with an employer match will definitely beat a market index. Some companies however have rather a poor selection. I manage my son's 401K for him, he has only 24 choices and his company terminated their match a few months ago. Of course these days it's probably hard to stay with one company for 20 years. I was with my last company for 32 years and received a nice farewll gift of 1 week's pay for each year of service.

I think the numbers above show the advantage of market timing, which I did faithfully from 1992 until 2007 once I was retired, managed my own money, and had the time and knowledge to do it. Moving out of the market in March 2000 was the single best move I ever made. You can see that the Nasdaq has to more than double to get back to where it was in March 2000.

I rode the market down with some individual stock holdings and sold out at a profit around May. Of course there was more of a run up after that. Started going short against the market in July and took a minor beating. Still believe there is a good chance we go down from here.

The keep buying at all times mentality will likely not be successful over the next 10 years, in my humble opinion. This is due to 2 factors....

1st is demographics, the bulge in the snake (the baby boomers) are retiring and finding they don't have as much money as they think. Stock market investments will be pulled out and used for living. The people at the beginning of the cycle (Old Limey for example) were perfectly timed to be in the market and catch the huge run up, but I don't believe this will repeat again simply because of demographics. I believe the conventional wisdom of stocks continuing to rise exponentially will be challenged over the next 10 years.

2nd is the gov't response to take the bad debts of the banks and put it on the FED & Treasury balance sheets. This is exactly what Japan did (and we criticized them for it!) and that led to 20 years of a terrible stock market- in spite of the run up in Japan stocks, the Nikkei is still 60% below it's peak in 1989/1990! I believe the US is in for something similar.

Lastly people keep focusing on Dow 10,000... well guess what the composition of the Dow changes- doesn't anybody remember that Citigroup and GM were removed from the Dow and replaced by Cisco and Travellers??? If the companies that start to fail are removed from the index and replaced by more successful companies than tracking the value of the index over time is just not meaningful!

I heard that if GM & Citigroup were still to be in the Dow we would be several hundred points below where we are today.


Mike: I couldn't agree more with your post - I was unbelievably fortunate.

Years ago I read the same predictions that when the Baby Boomers start retiring and taking money out of the market rather than putting it in that it would make a huge difference.

However now we have other much more serious factors to deal with such as our budget deficit of $1.42 trillion for 2009. This is more than the total deficit for the first 200 years of this Republic, more than the entire economy of India, and more than $4,700 for every man, woman, and child in the United States (AP article today). Other factors are the exploding National Debt - interest payments are 5% for this fiscal year and will be 15% of the budget by 2019. The number of people unemployed means less taxes being paid, and all the jobs that have permanently left the country do not bode well for a good recovery.

This has been a Lost Decade for the majority of investors as the following data shows.

March 27th 2000 to October 16th 2009

Nasdaq 100 ........... Down 63.03%
Nasdaq Composite Down 56.50%
S&P 500 ................. Down 28.62%
Wilshire 5000 ......... Down 23.05%
Dow Industrials ....... Down.. 9.34%
Russell 2000 ........... Up ..... 7.41%

For comparison purposes this data shows the 5 month period preceeding the bursting of the DOT.COM bubble.
The stark comparison between a good 5 months and a bad 10 years speaks volumes about the Buy and Hold philosophy.

October 19th 1999 to March 27th 2009

Nasdaq 100 ........... Up 99.16%
Nasdaq Composite Up 84.46%
Russell 2000 ........... Up 39.60%
S&P 500 ................. Up 27.81%
Wilshire 5000 ......... Up 27.48%
Dow Industrials ....... Up.. 8.04%

Mike's point about the Dow being a manipulated index is absolutely true. It is a particularly misleading index because of that and also because it only contains 30 stocks.

I haven't sold anything at the bottom and kept buying throughout - in fact I moved more money from my mixed funds to straight stock funds and to commodities last fall and again earlier this year; also moved some money into bond funds when the bonds were terribly undervalued last fall. Bought some individual stocks in February too in my non-retirement brokerage account. I plan to do the same with bond funds - either to stable value or to inflation-protected treasuries - as soon as there is as much as a rumor of possible rates' going up. I also bought some individual bonds last fall - some AA and AAA bonds with yield-to-maturity of over 8% on corporate and 5.5% on munis. Wish I had more cash then, but most of my cash was in CDs and I didn't want to break those.

Regardless, my net worth is a bit higher now than it was 2 years ago, but this includes some new investments. My return on investment since January 2007 is about -10% in 401K mainly because over 40% of my 401K was not in the market to begin with. Don't know about 10 years -- need to get old paper statements as my company's web site only includes last two years.

Outside of 401K, I am in the green, but this is mainly due to performance of some of my individual stocks e.g. my ESPP stock which is as of Friday is above its 2007 value.

I agree with Old Limey - there are times to buy and there are times to run for the hills. I was too greedy to sell in 2000 and 2007 (I knew real estate was in a bubble, but didn't have enough knowledge to predict the effect on the rest of the economy), but I did start to reduce my exposure to stocks in 401K in a last couple of weeks and will probably continue doing so.

Government debt question is interesting. It may lead to inflation which means that cash isn't safe either. As to market, higher inflation is not necessarily a bad thing at least for multi-nationals. So I may buy some individual stocks to hedge against inflation, but I am a bit weary of the market as a whole now.

"Of course these days it's probably hard to stay with one company for 20 years. I was with my last company for 32 years and received a nice farewll gift of 1 week's pay for each year of service."

I've worked for the same company for 26 years. I do have vested rights in a pension, though, it was frozen at 2007 level so if there is inflation my benefits are likely not to amount to much. They increased our 401K match to 100% of first 6% and added special "compensation" contribution for those whose pension was frozen (4% in my case). We have some nice choices in 401K, but I'd rather I had a bit more flexibility e.g. to buy individual TIPs and corporate bonds rather than just funds. But I cannot really complain, at least while I have this job.

"Really, you understand the entire economy? If so you should open your own hedge fund and become a trilliionare. Alternately, you may consider the possibility that you got lucky, and that luck can turn quickly."

OK, I got lucky. But better to be lucky than you.

The problem with trying to understand the current behavior of the market is largely due to the fact that two of the largest investment banks are able to borrow money from the Fed at about .25% interest and use their enormous money, power, and state of the art program trading systems to drive the market in whichever direction suits them as they reap huge profits. There were lots of days this year when those two banks were responsible for a huge percentage of the trading on the NYSE. This is common knowledge and is all over the Internet if you search for it. It will be interesting if out of the blue one of these days they decide it's time to start shorting the market. Did you notice the profits one of them posted this week, and the amount they set aside for employee bonuses?
It was never like this in the good old days when I was playing the market.

Old Limey,

You are absolutely correct- a big part of this run up was caused by the 'liquidity' created from gov't injections of cash. Take a look at the rate of insider selling, it's at a mult-year high (sorry to not find and post the link). I also read something that the big financial stocks were accounting for 60% of all trading volume...?

I have gotten completely out of stocks as of October including my retirement portfolio- switched these to fairly stable bonds. Only have some short positions right now. Nobody knows the future and I could be wrong as the market keeps running up but I believe there is more downside possibility than upside. Note I'm not a professional (unless you can get a certificate for being a fool) so invest at your own risk.

Old Limey- one more thing... I think we are on opposite sides of the same coin. You were at the beginning of the boomer wave and accumulated savings and got in the market and caught the excellent runup and then had the foresight to cash out. For me I got my Masters degree and entered the work force in late 1996, just as the bubble was in full force. Started as a basic engineer and switched into a fast moving company as a Manager in 1999, and then jumped again to a customer company of where I worked in the capacity of a Director in 2001- as my company at the time grew from $400 Million in annual sales to 1.5 billion! Crazy times but the great timing combined with hard work got me promoted faster than what would normally be possible, so I'm incredibly lucky as well.

If not for that run up early in my career I never would have become a Managing Director at 33 and CEO at 35... so the bubble was kind to me in a different way!


Yes! My life unfolded well before yours, I obtained my undergraduate degrees in Mechanical engineering in 1955 and Aeronautical engineering in 1956, left England, and then got my MS in engineering mechanice in 1963, finally retiring in 1992 as a senior staff engineer running R&D programs for advanced computer software tools used in structural analysis. My company provided parallel career paths - Technical & Management. My technical skills were a lot better than my people skills so it was an easy choice for me.

There is definitely more downside to come before a lengthy, stretched out recovery hopefully starts to take hold. I live in Silicon Valley, home to some of the world's best companies and best minds and things are very tough here for lots of younger people. Restaurants that used to be happy, thriving businesses are now half empty even on a Saturday night, and barely making it. Our unemployment rate is much higher than the national average.

This website offers two free e-letters, "Outside the Box" and "Thoughts from the Frontline" that go far beyond the normal market letters that are sold. The author is very well known and has many famous friends. He doesn't tout stocks or funds, or tell you what you should do. His letters basically provide information that over time covers all the subjects that affect the markets and the worldwide economies and financial systems. Frequently the main part of a letter will be extracts from articles by leading experts in related fields. I used to subscribe to paid market letters for many decades but these two freebies beat them all. I have learned a lot from them. -------
The author keeps your e-mail address confidential and doesn't give it out to anyone at all.

Old Limey,

I am a fellow Engineer- BS in Mechanical Engineering in 1994, Masters in Mechanical & Aerospace Engineering in 1996. I really believe getting an Engineering degree is a good choice as there are so many ways to build on this.

When hiring, I've taken into account it's possible for an Engineer to learn finance & business meanwhile it's very unlikely a Finance or Economics major would be able to become an Engineer!


- RE "engineer can learn finance but finance major will unlikely become an engineer". Right. I had an engineering education, launched my career in finance, now moving back to engineering. Even though it's not the same discipline, my degree helps.
- RE "Demographics working against the stock market": you could solve this problem by investing in countries with a healthier population pyramid
- The changing composition of the Dow: guess what, this actually works in our favor. See this John Mauldin article:
Short summary: cheap (unpopular) stocks are dropped or decreased in weighting, in favour of expensive (popular) stocks, which has a negative effect on future index returns.

"I have gotten completely out of stocks as of October including my retirement portfolio- switched these to fairly stable bonds. "

You mean this October, i.e. right now, right? Unless you invested in individual bonds that you plan to hold to maturity, I wouldn't count bonds as stable. If interest rates go up, the value of your bonds will go down. Now, I don't know when the interest rates start going up, but there is not much room for them to go down. Especially if yours are a long term maturity bonds, they will go down. The government sets short term interest rates, but long term interest rates can go up regardless of government actions. Personally, at least in 401K I plan to move all the money currently in bond funds into stable value pretty soon. I've been gradually reducing stocks holding too at least in 401K. In taxable accounts I still keep some individual bonds and some individual stocks that would benefit from low dollar, but I have a fair amount of money in cash/CDs/I bonds. I am about 45% in the market now.

'RE "Demographics working against the stock market": you could solve this problem by investing in countries with a healthier population pyramid'

Right, or the large US multi-nationals. Not only do they sell most of their products abroad, they also benefit from lower dollar - their products are cheaper, and when they convert the profits into dollars it adds up to a larger amount.


Good point on bonds- you are right that when interest rates go up then bonds go down. I'm not trading bonds so much plan to hold a number to maturity.

On demographics, it's interesting- China, Japan, Europe & the US have some demographic challenges ahead. Countries like Cambodia and the Phillipines have a tremendous number of young people but the infrastructure and free market system isn't strong at all.


Chinese retirees won't have any stocks to dump in the market (as opposed to US retirees).

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