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Investors are not very smart people...

Recs

8

December 30, 2009 – Comments (13) | RELATED TICKERS: SPY , O

Before I start making my point, let me first apologize to all investors for the title of my post. I didn't really mean it like that...

However, I just can't get over the fact that 95% (my rough estimate, not based on scientific data) of the investors (including our CAPS population) during these last 8 months kept repeating the same mantra(s): This is a fake rally; This is a junk rally on low volume, Market can't stay this irrational for long, gains like these can't hold; Market will collapse; This can't be happening as it hasn't happened ever before; Market will be back to 666 by the end of the year; What a crazy market, so unpredictable, blah, blah, blah.

I hope you got the picture (and recognized yourself or someone you know).

Now, let's just take a simple look at these 2 charts:

S&P 500, March 1, 2003 - December 30, 2003

S&P 500, March 1, 2009 - December 30, 2009

And, what do you see? Yes, the exact same picture.

SAME. NO DIFFERENCE. Other than the numbers on the left of the charts. In the first chart, market started around 850 and finished the year at 1100, and in the second chart, market started around 670 and ended the year around 1100. 

But the lines look the SAME. Same small corrections (no major ones) in both of them. Same small dip in November, and the same final run in December. And both lines started going up (after the bear market) almost on the SAME DAY. They even had the same "fake" rally in the month of November the year before (not shown in these 2 links).

I mean I can go on forever: EVERYTHING IS THE SAME. No big corrections, no collapse. Same start date, same moves, everything the same (but the volume did triple though...).  

So my question is: How is it possible that majority of investors failed to see this???

2003 was just 6 years ago. How did we forget so easily what happened at the beginning of the last bull market? HOW? Market throws a curve ball with a stronger than expected bear market, and we forget just like that? Incredible, I mean INCREDIBLE... 

Good Luck in 2010 Everybody!

 

p.s. If you are now thinking something like: "It's easy for you to say this now when the year is over (hindsiht is 20/20)", please keep in mind I'm the Mister Cleo... :)

  

13 Comments – Post Your Own

#1) On December 30, 2009 at 1:06 PM, dragonLZ (99.70) wrote:

Uups, forgot to post a link to Mister Cleo...

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#2) On December 30, 2009 at 1:15 PM, dudemonkey (39.58) wrote:

However, I just can't get over the fact that 95% (my rough estimate, not based on scientific data) of the investors (including our CAPS population) during these last 8 months kept repeating the same mantra(s): This is a fake rally

Actually, investors don't make market predictions.  Speculators do.  You probably won't see too many Motley Fool Inside Value people doing anything other than searching for undervalued companies.  There's really no reason to think about the direction of the market. 

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#3) On December 30, 2009 at 1:28 PM, neskolf (29.93) wrote:

Dudemonkey beat me to it.  There's a definite distinction between investors and speculators.  That's not to say that all investors are smart and that all speculators aren't.  Just that investors don't engage in in the same sort of behavior (generally speaking) as speculators.

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#4) On December 30, 2009 at 1:50 PM, Imperial1964 (97.51) wrote:

Just playing devil's advocate for a minute, we aren't necessarily out of the woods yet.  I think we've seen the worst, but not everything is sunshine and roses.  A second dip in the economy is a possibility in 2010 or 2011.

Anyway, this always happens at inflection points.  I remember the end of 2007 the consensus was that there would be no recession and many were still arguing that well into the first half of 2008.

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#5) On December 30, 2009 at 2:01 PM, russiangambit (29.47) wrote:

What made you to come to the conclusion that 2009 is a repeat of 2003? There are similarities and there are differences too. The nature of the problem is different , the cure applied was the same (albeit in much larger dose) so we'll see if the cure will work this time. To say that it is obvious even now that it is going to work is quite far fetched.

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#6) On December 30, 2009 at 2:12 PM, dragonLZ (99.70) wrote:

I said the charts are the same, not problems, not cures, not results of the cures...

My goal was to point out that so many people said "this market is so unpredictable" when in fact behaved exactly the same as the market in 2003.

I'm sure I can find hundreds (if not thousands) of posts about irrationality of this market, with advices to investors to sit on the sidelines (or go all in short) as this rally can't be trusted because is just "so not normal"... 

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#7) On December 30, 2009 at 2:16 PM, tkell31 (< 20) wrote:

Did you ever point this out prior to the year coming to an end?  If it was so obvious all along could you please point to your post where you identified it previously?  If you didnt then it is a nice observation, but then again observations made in hindsight usually are.

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#8) On December 30, 2009 at 2:29 PM, dragonLZ (99.70) wrote:

Have you seen MR. Cleo's link.

I was accurately predicting market moves since June (when I joined CAPS).

In RL, I started buying like crazy at the beginning of March...

 

Disclaimer: I have to be honest and say that I didn't make a lot of money (percentagewise yes, monetwise no) this year (even though I bought GNW at $2, LVS at $2, MIC at $2, SOA at $3, MOD at $3, OSK at $6, CENX at $4, GCI at $4,...) because I was investing money I couldn't afford to lose (read: money I needed to pay bills)...  

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#9) On December 30, 2009 at 2:37 PM, tkell31 (< 20) wrote:

Yes, I'm familiar with the other link and the largely vague and already happening events you predicted.  Calling a 10500 top when it was already at 9500...incredible!  My favorite is calling for a pullback after it already started, like predicting rain after you are already wet.  Very impressive.

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#10) On December 30, 2009 at 3:10 PM, EPS100Momentum (72.08) wrote:

I was early, started buying in Dec. 2008. If I waited till March 2009 I would have a bit more profits, but satisfied non the less.

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#11) On December 30, 2009 at 3:13 PM, dragonLZ (99.70) wrote:

That's what I said here Momentum...

Good Luck!

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#12) On December 31, 2009 at 2:19 PM, TSIF (99.96) wrote:

Ditto July 1974.  The "forecasters" who predicted a double bottom and are still waiting for it are the ones that amaze me.  Pair Oct 2008 with March 2009 and isn't that a double bottom?  This recession and climb back was just too rapid for some people. They expect things to happen based on past history, which is not a guarantee, then they don't see it when it does happen.  Best wishes in 2010.  The "system" is still fragile and some profit taking early 2010 could cause a dip.  I think because the recession was compressed that stability may not be as assured, but I agree that that would be a minor correction, not a double (or triple) dip.

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#13) On December 31, 2009 at 4:46 PM, guiron (< 20) wrote:

I dunno. I'm a dividend/value investor. I enjoy playing the momentum game here as well as try out some speculative plays, but my real portfolio is 90% dividend with some options. I'm not the best options trader, but my portfolio is up over 20% in 2009. While this doesn't quite match the runup in the S&P, it also doesn't match the lows it hit, and I'll take 20% yield anytime. And while the market followed some predictable patterns as of late, I don't put much money on trying to figure out the direction of the market.

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