The Hidden Story of October

Did you miss the hidden story?  Did you miss the recent 10% climb of equity markets?

The media would have you notice the more sensational headlines about stocks tumbling 2% in one day; however, there are also articles about the markets “fending off the bear”.  The media will draw your attention headlines that have you watch more to then sell more advertising.  But you, as an investor, need to have knowledge of what to notice, observe and assess in order to take care of [your savings & investments], rather than the media hype.

What happened most recently?  From October 3^rd to October 21^st, a 3 week period, we see that the DOW and S & P 500 were up over 11%.  For the year, the DOW is up 2% and the S & P 500 is roughly flat.  There is a quote in the Wall Street Journal that speaks along these lines.  “…there were people who were out of the market who are now saying, gee, I just missed 10% up,” said Mr. Marshall of Knight Capital.  “And I can’t afford to miss the next 10% move.”

Wrong, Mr. Marshall!  You can’t afford to miss ANY 10% by not being fully invested.  Missing 10% means that if you were out of the market and missed the last 3 weeks, with $1mil invested, that’s $100k.  The opportunity costs don’t stop there, however.  In 10 years, at 7% returns, the money doubles meaning you missed $200k, and in another 10 years – 20 years total – you’ve missed out on $400k.  That is capital that could produce an additional $1,300/month in retirement income to pay for healthcare, food, rent or utilities.  In other words  . . . your survival.

You need to know that intra-year falls are common and should be expected.  If you want the returns from equities, then you need to be willing to accept the risks of equities.  In 2009, there was an intra-year decline of 28%, but the year ended up 23%, which is a 50% swing in 1 year.  More recently, in 2010 there was an intra-year decline of 16%, but the year still ended up 13%, which again is an upward swing of almost 30% in one year.

 You must know what to notice, what to observe and what to assess in order to get superior results with your investments.  You also must maintain the long term moods appropriate for gaining wealth.  Resolve, discipline, passion and ambition will help you keep centered in the investment principals that win in the long run. 

Finally, stick with investment practices such as rebalancing, owning equities, staying fully invested and diversifying across multiple market segments across the globe – these practices lead to appropriate care for your survival.

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