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Several months ago, a user started a thread here called "Time For Vanguard Total Stock Market Index Fund" which, if you care, you can read at

Here's the question that started things:

Would now be a good time to take a nice big positing in a total index fund? With the DOW and S&P off 16% and 17% respectively, wouldn't buying in now gurantee yourself returns of those magnitudes when the markets recover and eventually reach new highs? When we return to new highs is anyones guess, but eventually it will get there.


Clearly, the user was taking the "standard" advice of index fans in believing that time would heal virtually any potential injury to a portfolio. I pointed out that the S&P500 index at the time of the question was roughly at 1300, and that it had passed through 1300, going up or down, frequently in recent years. Therefore, I said I wouldn't buy the broad market -- or anything else -- just because it's lower today than it was at some earlier point. It could be a case of trying to catch a falling knife.

Two other users, with only tepid enthusiasm, said that it was probably an okay time to buy the total market, but qualified that advice in various ways.

One, Mrparrotfez, reminded the original poster not to ignore risk, saying I balk at the usage 'guarantee yourself returns', because I think it's very dangerous to consider anything guaranteed in investing.

Ziggy29 agreed, saying The only thing you would "guarantee" is that you bought at an entry point 17% below the high, and thus will have a higher return than someone who bought in at the high.

Joel Williams, characteristically, had the chilliest view of the prospects: In the last major decline, the S&P went down over 40% from its high. So if that is any guide, there is over 23% more due off its high.

(Looking back, it is almost eerie how accurate that comment was!)

Now, it seemed to me that the user was looking for endorsement of an idea, and I suspect that he/she may have made the purchase no matter what was said here. But I hope other users, especially newcomers, notice that the replies were all thoughtful and at least somewhat cautionary.

With that in mind, if a person comes here today -- with the S*P only at about 900! he or she might have the same thesis as the poster cited above. If it's low, it must be poised to go up, right?

My first reply is, of course, "I sure hope so!" A rosy view would be to expect the market to behave as it did in 1987 or 2001, and that there could be a big comeback within a year or two.

But there is a truly huge amount of uncertainty and economic displacement going on. So I'm leery of the market behaving as it did in 1929 and thereafter. If so, the full recovery could take decades. And for the same reasons, we might not have bottomed yet.

That fact is pretty sobering. And it should be even more sobering to consider how much different our economy is now, compared to the 1930s, 40s and 50s. We can't rely on manufacturing to get out of trouble, which is how we did it before. We also did not owe the world a zillion dollars back then, in bond obligations and trade deficits. One *could* see things as being pretty bleak, and although it is true that stocks can recover before the economy does, there is no guarantee that they actually will do so.

Of course, I do not know what will happen. I haven't heard anybody make a really credible case for any particular scenario, whether bullish or bearish. So the bottom line now is the same as ever, and should be emphasized. We need to advise users to spend their time on research and study, with the goal of becoming self-reliant regarding their investments. They need to avoid the Greed/Fear syndrome and try to make reasoned, realistic decisions.

They should understand that a board like this is great for comparing notes on specific funds, or news about managers or fund companies or whatever. With such interaction, we can refine our understanding of things that we have already put some work into. We can challenge each other, and in the process perhaps discard old ideas that we did not realize were stale.

But that's a much higher level of exchange and discussion than we're seeing lately. So I've posted this to explain things to any newcomer who wonders at our silence or equivocation. Nobody should ever get the idea that a board like this is a viable place to get quickie "buy/sell" tip. Nothing good comes easy, especially now.
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Well, here is some standard advice from a well-known financial planner:
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"Nothing good comes easy"

Amen to that, brother!

-drip (who first heard that truism from his high school football coach over forty years ago)
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               GAIN      MDD%
              --------  --------
_1989          19.24     10.56
_1990         -17.80     30.70
_1991          56.84      7.48
_1992          15.45     15.05
_1993          14.75      8.88
_1994          -3.20     13.70
_1995          39.92      7.86
_1996          22.71     16.55
_1997          21.64     14.11
_1998          39.63     29.55
_1999          85.59     13.07
_2000         -39.29     53.79
_2001         -21.05     50.22
_2002         -31.53     45.90
_2003          50.01     12.97
_2004           8.59     18.63
_2005           1.37     12.47
_2006           9.52     14.78
_2007           9.81     11.13
_2008         -39.08     39.08


              GAIN      MDD%
            --------  --------
_1989        27.25      7.56
_1990        -6.56     19.92
_1991        26.31      5.67
_1992         4.46      6.24
_1993         7.06      5.00
_1994        -1.54      8.94
_1995        34.11      2.53
_1996        20.26      7.64
_1997        31.01     10.80
_1998        26.67     19.34
_1999        19.53     12.08
_2000       -10.14     17.20
_2001       -13.04     29.70
_2002       -23.37     33.75
_2003        26.38     14.05
_2004         8.99      8.16
_2005         3.00      7.17
_2006        13.62      7.70
_2007         3.53     10.09
_2008       -35.95     38.03

Note that the NASDAQ numbers for 2000 and this year so far are 
virtually identical.  But the S&P500 numbers for this year are much 
worse.  In fact, greater than the sum of 2000 and 2001.  Does this mean 
anything?  Well, maybe this time the S&P500 and the NASDAQ will reverse 
roles.  Maybe we have only begun to see the decline in the S&P500, but 
perhaps the decline in the NASDAQ is mostly done.

Time will tell.
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I'm replying to myself in order to drive home a point for any newbies. At the top of this thread I explained why, several months ago, people were reluctant to urge another user to buy the S&P index just because it had gone "down" to 1300.

With the benefit of hindsight, we could see -- just two weeks ago -- that the caution was appropriate, because the index had declined in the intervening months, and on that particular day closed below 900. And, I said, we might not have bottomed yet.

Indeed, the index closed at low as 848 just a few days later. Since then, it has generally eased upward. I'm writing this in the middle of the day, and who knows whether the current level will hold till the close of trading. But right now the S&P index is nearly at 1000.

Experience should give us wisdom. History should teach us lessons. Watching the world change, we should gain new perspectives. And one new perspective is this: All of a sudden, the S&P at 1000 looks high!

After all, it's had an eleven percent jump in two weeks. That would normally be a happy return for a full year. If, repeat IF the 900 closing figure made any sense at all on October 22nd, then today's level must surely be overpriced, right? So, isn't this a good time to sell?

That's not a suggestion, it's a rhetorical question intended to provoke thought and analysis. Like:

When the index was at 1300, I told the would-be buyer that he might be trying to catch a falling knife, i.e. the index might have been "low" (relatively speaking)because it was headed down. The flip side of that notion is that something might be "high" (relatively speaking) because it is on the way up.

There are some people who love to talk in theoretical terms, and who would dismiss the notion of buying securities after a price rise as "chasing performance," a vaguely defined notion that for some reason is always painted as evil. So, whether or not it is a good time to buy stocks, some of the more shallow theorists would poo-poo the idea on theoretical grounds alone, without analyzing the fundamentals of the stocks in question, or the macroeconomic trends involved.

Part of the reason for this message is to anticipate a new barrage of questions from newcomers who, now that the market seems to have stabilized momentarily, will want to know whether they should buy in. My goal, as before, is to make them wary of simplistic answers.

In the past month, governments around the world have taken many huge and unprecedented steps to stop the unwinding of stock prices, as well as the values of other assets like bonds, commodities and real estate. IF those were the right moves to make, and IF they work as intended, then stock markets should remain stable. But I don't think we will know about that for a long time.

If there is a silver lining, it may be this: anybody who is old enough today, to have had investments going through the maelstrom of the past 12 months, should have gotten a strong, clear dose of reality. Going forward, they should be more aware than ever of the potential for losing money, and one hopes it will make them more careful and more thoughtful as they try to find ways to make that money back.
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