Between March 9, 2009, and March 9, 2012, the Dow Jones industrial average virtually doubled from 6,547 to 12,922. Although it was a bumpy, zigzaggy ride at times, it was a massive blessing for investors who hung in there.
Whenever this happens, I never cease to be amazed by the individual investors who come out of the woodwork crying about their losses and the ruthlessness of the stock markets gyrations. These are the people who were frightened out of the market during one of the prior major declines. They chose to pull all their money out of the market, and then cried doubly as they watched the market sail on to greater highs.
First, if you are the kind of investor who has to pull your money out of the market at the first sign of market weakness, then you should not be in the market at all. By virtue of being invested in the market you are accepting the realities of the market. Second, if you are the kind of investor who absolutely cannot stand for your portfolio to lose significant value in the near-term future, then you should have been more diversified into bonds and income fund holdings where you would not be subject to such major fluctuations.
As J.P. Morgan once quipped, Stocks tend to fluctuate.
Please dont misinterpret me. Im all for the small investor buying into the market and riding it up, up, and away. But he or she better do the homework first. Throwing hard-earned money into the stock market is not a frivolous activity nor does it guarantee a return. Whatever money you throw into the market should be part of a long-term, planned, comprehensive investment strategy.
The worst action you can takeand there is always a segment of the investing community that does thisis to have money in the market, see a crash, pull your money out in fear, and then keep it out as the market recovers onto new highs. This is called buying high and selling low, and it is a recipe for investing disaster. On the other hand, the educated, disciplined investor will, over time, buy low and sell high. This is what enables the stock market to be your friend instead of your enemy.