Last week the Dow went over the 15,000 mark for the first time in its history. Just 4 years ago, we were staring at a number in the mid 6,000's and now it has more than doubled. That is truly incredible, especially considering how poor the economy has been and how much debt we all are in.
I know lots of people cashed out of stocks in 2008 and 2009 when the market was crashing. At some point they just couldn't take the pain and felt they had to get out with something.
What a mistake they made.
We should all learn from what has happened and in my mind the primary lesson is this: before you start buying stocks, make sure you can invest for the long term or you probably shouldn't be investing at all.
If you know you will need the money you want to put in stocks in under 5 years, put it someplace else and leave the stock market alone. History has repeatedly shown that the market eventually makes a rebound no matter how bad things appear to be, but you have to have time and the stomach to wait things out.
People invest money in stocks to make money and understandably, they HATE losing it. When the market as a whole goes through a protracted period of downward movement, a person's resolve is constantly tested. In 2008 and 2009, it didn't matter much what stocks you held because everything was going down. Everyone was losing and if you were one of the people who was going to retire soon and had all your retirement money in stocks, what could you do? Sell and get out with something or stay in and possibly lose more of the money you absolutely would soon need?
Either way, you were screwed at that point.
That is why the older and the closer you get to retirement, the more you should reduce your exposure to stocks. If you don't have a long time horizon to wait these bear markets out, you need to make sure to protect yourself by not having everything in them.
As it turns out, everyone who didn't panic in 2009 has now been rewarded. The market has come all the way back and more for those who had the ability to wait things out. But for those people who had to sell because they were investing with short term dollars, they lost out and probably never got back in for the ride back up.
DOW 15,000: IF YOU DIDN'T SELL IN 2009 YOU GOT IT ALL BACK
STOCKS KEEP CLIMBING THE WALL OF WORRY IN 2013
It has been a long time since we have had any significant pullback in the stock market. In fact, the last down turn of any significance ended in mid November 2012 so it has been a good 4+ months of steady gains since then. The Dow seems to challenge all time highs on a regular basis now.
But the stock market keeps going up. What gives?
It is called the Wall of Worry and boy are investors ever climbing it with zeal.
One thing you need to understand as a beginning investor is that stocks and the stock market in general do not always follow a logical path. This is one of those times.
The stock market mostly moves on people's perceptions, feelings, emotions, and greed. Take a look at Apples stock as an example: it went up and up and up all the way to $700 over a period of years and then suddenly, overnight it seemed, investors decided they no longer wanted anything to do with the stock. There wasn't any real change in anything that started the reversal, at least not right away.
I'm scared right now that the stock market is too high and I don't understand why it keeps going up. That is the wall of worry. Why do investors keep putting more money into the market when things seem so bad? Its not like our politicians are doing or going to do anything to make the economy better.
This seems like a situation where a small spark, any small spark, can light a fire and burn away a couple thousand points on the Dow. It seems like a tipping point where some seemingly innocuous bit of bad news may start an avalanche of sellers. And once the selling ball starts rolling, people will be clamoring for the exits in an effort to protect as much of their gains as possible.
I hope I am wrong and if I am, I'm missing out on a good market and some nice gains. But my senses tell me that caution is a good thing right now so I am not putting any more money in at this time.
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