S&P 500 at 1300: A Look Back 3 Years Ago

I was looking through some old posts looking for writing inspiration, when I found this one that I had completely forgotten about:

S&P 500 at 750: Thoughts From A Market Timer – Published 11/21/2008

I still remember that night rather vividly. I was on a business trip in yet another bland hotel, stuck watching CNN. The S&P 500 index had closed at 752.44, a number I though I’d never see. I logged into my Vanguard account from my laptop and watched my account values dropping, but I also sensed an opportunity. Investing gurus were always saying to buy when people were most scared. This Hussman fellow made a convincing argument that the odds were in my favor. I actually had another draft of that post with the alternate title “S&P 500 at 750: Time to Back the Truck Up?” I tentatively put in a buy/sell order to move all my money into stocks.

But I didn’t execute it. Why? I was scared. And if you read the comments on that 2008 post above, lots of other people were scared too. And it did get worse for a while. I managed not to sell everything in a panic. In fact, I didn’t sell any stocks at all. I just kept with my asset allocation and rebalanced, which meant that all my new paycheck money went into stocks. Here’s the chart of the S&P 500 since I graduated college:

Not exactly a smooth ride! Today, my portfolio is bigger than ever, but I still feel the some uncomfortableness investing with the S&P 500 at 1300. Is it too high now?

Buy, hold, rebalance. This method will always have its doubters, but I believe in it more strongly as the years have passed. This means that I’ll never be able to brag on the internet how I was “100% cash right before the crash” or “Moved all my money into stocks right before the big boom”. However, I do feel it has improved my investment returns, and that’s the real goal.

Comments

  1. I made some great investments right after the big crash, but looking back, I see it as good timing and luck more than anything. I advise newcomers to stocks that nobody knows the future. If they did, you would have investors who were 100% right, but read any “hot tip” or “must buy” and wait a few weeks/months and you’ll see that it’s about 50/50. Stocks are just driven by too many factors, and probably the biggest of all is emotion, which is the most unpredictable. That’s why I believe your strategy of long-term investing and ignoring emotional urges to buy and sell for short term gains/savings is definately the most logical.

  2. My method is buy, hold, and ignore. You are just as likely to time things wrong as right, in fact you usually are more likely to time it wrong (and often get hit with fees while doing so).

    If you have time on your hand and making money is your goal, there are better ways to invest your time than worrying about the unpredictable market. Supplement your income with a guaranteed $2000-$4000 a year through deals on this site and others, and you’ll beat 99% of the people. The only price of admission is a decent credit score and some restraint.

  3. Gurus talk alot. Tell us what they’re doing, not what they’re saying.

  4. I dig the whole buy/hold/rebalance philosophy in general, and for the most part have followed that theory… maybe being a bit lax on the rebalance part from time to time… but like any personal philosophy, the more rigid your adherence, the more likely you will blind yourself to reality. We went through a very special time in early 2009, and while I didn’t go hog wild maxing out credit cards to buy Citi at $1, I did make some calculated risks, like opting to convert my huge rollover IRA to a Roth, loading up on CAT, and GE, and the aforemention $1 Citi, tripling my employee retirement contribution. I didn’t do it all at once, and it didn’t make me phenomenally rich, but even the most patient, long term viewing, zen master investor has to occasional snap out of nirvana and realize that April-June 2009 was a time to act. I agree that long term vision and patience are key, and one should avoid picking up pennies in front of bulldozers…. but occasionally you see a Krugerrand in front of a bulldozer, and the dozer is moving reeeealll slow… and you’re feely spry that day…

  5. @Dood – I like how you put that. :) Next time there is fear in the streets, I’ll try to remember bulldozers.

    The only thing I really did in 2009 was buy a lot of long-term TIPS that were paying a 3% real yield instead of just an ETF. Highly conservative move considering all the things I could have done like buy Citi at $1, but it has still paid off rather well.

  6. @David – I agree, that’s how I view many of the deals that I do – it’s supplemental income that amounts to thousands every year. If you look at the average portfolio balance and/or average household income, a couple thousand in extra income plus some frugality thrown can make a huge difference.

  7. Ryan K. says:

    Buy and hold of market ETF’s is not that wise. Look at even the S&P or the Dow Jones and your returns are miniscule over the last 10 year period. If you invested 20,000 in the S&P in 08/1999 you would have the exact same amount almost 12 years later. This is awful investing.

    If you are going to buy and hold at least go for high yielding dividend stocks that are in many ways safer then the S&P and pay up to 5% a year. You don’t have to know a ton about the stock market to pick boring stocks like Coke, General Mills, Exxon, Bristol Meyers, and others that don’t fall nearly as much as in major market crashes, but pay great dividends that only increase when the market goes down.

    Buying and holding market ETF’s will never allow for the annual returns that you need to one day retire. Dividends must be a requirement for you to get there as they greatly protect you in times of huge market fall out.

  8. As someone who is an active trader, I think it is all about balance. The truth it is more luck to time a bottom, and with the benefit of hindsight it is easy to second guess. What I remember about that time was that GE was close to potentially defaulting, the stock fell to 5 in the days before the bottom, and had GE gone under the market would have fallen a lot further. There was an active debate at the time whether the government was going to take over the banks, wipe out their equity and recapitalize them, had that happened the market would have probably fallen further. There were a lot of things happening very quickly and by the time it was clear the Gov was going to bail out the financial system, the market was already up 10%. The discipline of maintaining a set allocation and rebalancing allows you to make rational investment decisions without spending hours a week thinking about and analyzing the market and still having the exposure. The time you save is worth a lot.

  9. Thank you for providing a real world case study of trying to “[buy] when others are fearful”, I find it illuminative and hopefully your readers can learn from your mistake. Breaking against ‘common sense’ is probably one of the more difficult things to do, especially when large amounts of your money are on the line.

  10. Next time an opportunity like this arises I will back the truck up and buy LEAPS.

  11. I remember this time period. My boyfriend and the time (now my husband) kept saying he was going to cash out all his stocks that were left to him by his grandfather. I kept telling him to leave it b/c we’re only in our late 20′s. There will be time to recover for us. We even got into a HUGE argument.

    What happened? He converted to cash and lost a ton of money than if he had just left it.

    I agree with David: Buy, hold and ignore. Great post again Jonathan!

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