Heavy selling produced a down day in Monday's stock market (Mar. 10).
*****
Several times on this page recently I've talked about housing and stock market forecasts that Bob Prechter (and other Elliott Wave International analysts) made several years ago. We've heard from a great many subscribers who were helped by these forecasts.
Yet I've also heard from folks who correctly point out that, from the 2002 to the 2007 high, the Dow Jones Industrials virtually doubled. Their basic question is, didn't we miss a big opportunity to be "long" or make the even bigger mistake of being "short"?
Fair question, I offer two points of reply. First, the Dow Jones Industrials (or any stock index) do not reflect in any way the actual gains of equity investors themselves. I've made this point as recently as last week, and at other times over the years.
The well-known Dalbar Study looked at investors' returns for the twenty-years 1986-2005, and found that while the S&P 500 earned 11.9% annually, the average equity investor earned a 3.9% annual return. The annual inflation rate for period was 3.14%.
What's more, Vanguard Group founder John Bogle, published research in The New York Times (October 15, 2006) which analyzed the 200 equity mutual funds with the largest money flows from 1996 through 2005. Bogle found that those funds had average annual returns of 8.9%, while the average investor in those funds earned 2.4%.
Second, please consider a couple of charts.
The chart above goes a long way to explain the facts above -- in truth people don't buy & hold, they chase performance.
This table gives another perspective even on buying & holding a stock index fund. It speaks for itself. As for being "long" or "short," individuals who fit the "buy & hold" profile typically have a low tolerance for risk, which means they prefer "safe" instead of "aggressive."
I'll quote Bob Prechter's words from Conquer the Crash to folks who fit that profile: "If you do not know by experience what the terms 'short selling' and 'leaps' mean, I recommend that you avoid engaging in these activities."
More on this soon, thanks for reading Market Watch.