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Introduction
In April of this year I started writing about the miserable stock markets we’ve experienced in this first decade of the 21st century, suggesting that things might even get worse.
They have, big time.
We are experiencing the worst decade ever in stock market history, at least so far. In this 3rd quarter commentary I update both my 1st and 2nd quarter observations. If the following looks familiar to you, thanks for reading my earlier articles. The story told below is pretty much the same one I’ve already told twice this year, except things have gone from bad to much worse with each new revision. Frankly, I’m tired of telling this decrepit decade tale. Let’s hope the 4th quarter version is more upbeat.
It’s taken all the running we can do to lose ground
Unless there’s a significant rally in the next 15 months, the 2000s will prove to be the worst performing US stock market decade ever, actually losing money for the first time. The following chart shows the returns of the past 7 decades, and the 8.75 years to date through September 30, 2008:
Here we are, 90% of the way into the first decade of the 21st Century, and US stock market investors have lost money. The S&P500 has lost 1% per year on average in the past 8.75 years, reminding us what risk means. The graph below puts this disappointment into further perspective. Investors would have been far better off in bonds or Treasury bills than in stocks. Do you think the next 15 months will bail the decade out, or bring more of the same? Where can we invest and be safe? One place that would have helped in the past 8.75 years is foreign markets, which have returned more than 6% per year, although they too have suffered recent losses. Similarly hedge funds have also protected reasonably well. In the following we focus on the more recent past, namely the year 2008 to date, to manage the recent pain.
The ride to disappointment has been bumpy. First the bubble burst in the 3 years 2000-2002, and from there the stock market clawed its way back so that investors had earned a 3.5% per year return as of October of 2007. We were back even with inflation. But then the next 11 months took all of that back, with the S&P plummeting 23% from 11/1/07 through 9/30/08.
As painful as the last 11 months have been, we can still learn from this experience. This is the kind of period that serves to stress test those investments that are supposed to be good defensive plays, and to evaluate how well our professional investment managers have held up. In the following we review various market segments and strategies, to show what has worked in the year to date and what has not worked. What sectors, styles, and countries have performed best and worst? Did hedge funds protect? And how about those poor old folks who are retired, and living off their savings? This year is almost over. Recent lessons can help us deal with the past and plan for what is still left to come.
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