Eye on the Market: 'Report Card Time'
By David O. England
Eye on the Market with David O. England - "Report Card Time"
(Editor's Note: Two charts were mistakenly absent from this column when it was orginally posted. Our apologies to Mr. England and to any readers who noticed they were missing.)
As we enter the month of September many are less than a month away from receiving their third quarter statement of investment returns. Actually, you should be less than a minute from your portfolio statement, since you need access to your portfolio online. If you are not, then take time right now to receive this information online. This year we will be proactive investors instead of reactive investors. This year you will work your investing game plan and not be afraid to open your mailed statement.
We previously feared the month of September, since over the last eighty plus years it has had the lowest one month average returns of all the months. Of course, the readers of my column have learned to be successful in the market by avoiding the “herd mentality”. According to legendary investor Mr. Warren Buffett, one should “Buy when everyone is selling”. So this month let’s be on the lookout for bargain prices if the September averages run true and once again it is a sell-off month.
In reviewing your portfolio returns for 2012, compare your holding’s returns with that of the market. The S&P 500 has a very respectable 11.6% return for the calendar year. Hopefully, your returns will be at least equal to or higher than the returns of the market. So what if they’re not? First, never make investment decisions emotionally. The best financial decisions are made rationally.
In reviewing your investment results you need to research the following…. what were the returns of each security compared to the market? Compare your returns in three different time frames: a. long term-since March 2000, b. from March 2009 and c. year to date. Unfortunately, many broker’s account reports are not designed to give these returns at a glance. If yours is not, you will need to research how to program your securities into a spreadsheet to have this auditing ability. This is something that I stress in my classes and seminars. If your securities outperformed the market, that’s fantastic. If not, you need to find out why. Be objective and once again do not make investment decision when you are upset or emotional. If you are not at least matching the returns of the market, then consider simply investing in the market with a no load S&P 500 mutual fund or better yet, a zero commission, low expense S&P 500 ETF (Exchange Traded Fund). As you have seen in my previous columns many times these S&P 500 ETFs outperform the more common high commission load mutual funds.
We are told by the financial professionals that we should invest for the long run and not worry when the market drops/sells off because the market will always rise again. Look at the charts from the Doug Short (dshort.com) and you will see that this may not be true, especially with the major indexes.
Both charts show the returns from the market peak in March of 2000 to the end of August 2012. The first chart shows the Percent Nominal Returns, meaning the actual dollar values. As you can see the S&P 500 did come back and made a new high in 2007 and currently is up 11.7% but the DOW is still down -7.9% and the NASDAQ is still down -39.3%.
The second chart shows the actual value, the REAL value adjusted for inflation. While adjusting for inflation, all three indexes are still underwater. This is important because it shows the true value of your returns. Since the peak in 2000 the Real return for the S&P 500 is (-16.4%), the Dow Industrials (-31.1%) and the NASDAQ (-54.5%). The bottom line is...not everything comes back and long-term investment thinking is far less from perfect… and these charts prove it.
If you are ready to roll up your sleeves and learn how the market really works and how to work the market to build financial wealth for you and your family, join me Friday September 14, 2012 at John A. Logan College for the first seminar in my Fall Seminar Series “Learn What Your Broker Does Not Want You to Know”!
For seminar information contact me at email@example.com.
(Disclaimer) The information above is for educational purposes only and is not intended to be financial advice. Your decision to buy, sell, short or hold any stock or investment product is a direct result of your own decision, free will and research.