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Knowing that the major stock market indexes had fallen around 40% this year my son asked me if we have been affected by the market decline. Hasn’t everyone? Even those rare brave souls who had the insight to short stocks likely have friends and family who have lost vast amounts of their retirement accounts.
I don’t like to be a doomsayer. While I certainly have sympathy for those who have lost most of their retirement portfolios and also possibly their jobs in general I like to be an optimist. Hence I will point out a couple of positive things I read this weekend in Barron’s one of my favorite financial publications. The S&P 500 index is 25% below its 50-day moving average. (The 50-day moving average is a technical indicator used to analyze markets.) This has only happened 5 times since 1928. Every time the index has been this far below the 50-day moving average it has rallied at least 14% within the next 50 days. It is also interesting to note that according to Mani Govil of RS Large Cap Alpha fund more than half of the companies that have reported earnings as of Thursday afternoon had increased earnings. I would not have known this from listening to the news on CNBC. Additionally there is the fact that crude oil has dropped from $147 to below $65 last week the lowest price in a year and a half.
When things have not worked as well as I had hoped with my investments as well as other areas of my life I like to view the experience as a lesson. Then I must ask myself what I have learned and how I may use this knowledge to improve my investment performance going forward. Here are the thoughts that came to mind. I will write about each of them as a 5 part series on what I learned from the market correction of 2008 over the next few days.
1.The stock market top was telling from a chart.
2.Asset allocation with cash equivalents is mandatory.
3.Pay Attention.
4.Prices always gravitate toward the norm.
5.Occasionally I must check my portfolio daily not weekly or monthly and may need to act with diligence.
Thank you for your interest in The Financial Woman.