Homepage / Investment / Investors posted solid returns even if they bought just as financial crisis erupted 10 years ago
Amazon says this Prime Day was its biggest shopping event ever Kudlow says President Trump is 'so dissatisfied' with China trade talks that he is keeping the pressure on As stocks regain their footing, an ominous warning looms Goldman Sachs downgrades Clorox to sell, says valuation is 'unsustainably high' How Satya Nadella has spurred a tripling of Microsoft's stock price in just over four years Kudlow says economic growth could top 4% for 'a quarter or two,' more tax cuts could be coming The one chart that explains Netflix’s stunning comeback US housing starts plunge 12% in June to a nine-month low Aerospace titans Boeing and Airbus top $110 billion in orders at Farnborough Target uses Prime Day to its advantage, logging its 'biggest online shopping day' so far this year Billionaire Marc Lasry sees bitcoin reaching up to $40,000 as it becomes more mainstream and easier to trade These are the 10 US airports where you're most likely to be hacked Amazon shares slightly higher as investors await Prime Day results Wreck of Russian warship found, believed to hold gold worth $130 billion A bullish ‘phenomenon’ in bond market is weeks away from fading, top credit strategist says Stocks making the biggest moves premarket: MS, GOOGL, TXN, UAL, NFLX & more Twitter shares up 50% since late April means most upside priced in, analyst says in downgrade EU fines Google $5 billion over Android antitrust abuse Mortgage applications fall 2.5% as buyers struggle to find affordable homes America may not have the tools to counter the next financial crisis, warn Bernanke, Geithner and Paulson Investors are getting spooked as the risk of a no-deal Brexit rises EU expected to fine Google $5 billion over Android antitrust abuse Ex-FBI chief James Comey urges Americans to vote for Democrats in midterm elections Elon Musk apologizes to British cave diver following baseless 'pedo guy' claim Disney, Comcast and Fox: All you need to know about one of the biggest media battles ever Xiaomi shares notch new high after Hong Kong, mainland China stock exchanges reach agreement The trade war is complicating China's efforts to fix its economy European markets set for a strong open amid earnings; Google in focus Hedge fund billionaire Einhorn places sixth in major poker tournament The biggest spender of political ads on Facebook? President Trump Asian stocks poised to gain after Fed's Powell gives upbeat comments; dollar firmer Stocks are setting up to break to new highs Not all FAANG stocks are created equal EU ruling may be too little, too late to stop Google's mobile dominance Cramer explains how Netflix's stock managed to taper its drop after disappointing on earnings Airbnb condemns New York City's 'bellhop politics,' threatens legal retaliation Amazon sellers say they were unfairly suspended right before Prime Day, and now have two bad choices Investor explains why 'duller' tech stocks can have better returns than 'high-flying' tech names Elon Musk is 'thin-skinned and short-tempered,' says tech VC Texas Instruments CEO Brian Crutcher resigns for violating code of conduct Google Cloud Platform fixes issues that took down Spotify, Snapchat and other popular sites Uber exec: We want to become the 'one stop' transportation app 'What a dumb hearing,' says Democrat as Congress grills tech companies on conservative bias Amazon shares rebound, report says Prime Day sales jumped 89 percent in first 12 hours of the event How to put your medical history on your iPhone in less than 5 minutes Investment chief: Watch these two big events in 2018 Even with Netflix slowing, the market rally is likely not over Cramer: Netflix subscriber weakness debunks the 'sky's the limit' theory on the stock Netflix is looking at watch time as a new area of growth, but the competition is stiff Why Nobel laureate Richard Thaler follows Warren Buffett's advice to avoid bitcoin Rolls-Royce is developing tiny 'cockroach' robots to crawl in and fix airplane engines After Netflix plunge, Wall Street analysts forecast just tame returns ahead for the once high-flying FANG group Roku shares rise after analyst raises streaming video company's price target due to customer growth China is investing 9 times more into Europe than into North America, report reveals Amazon says US Prime Day sales 'so far bigger than ever' as glitch is resolved Netflix is on pace for its worst day in two years US lumber producers see huge opportunity, rush to expand San Francisco to consider tax on companies to help homeless Homebuilder sentiment, still high, stalls as tariffs, labor and land drive up costs Powell backs more rate hikes as economy growing 'considerably stronger' Netflix history is filled with big stock declines – like today – followed by bigger rebounds Intel shares get downgraded by Evercore ISI due to rising competition from Nvidia, AMD Petco aims to reinvent the pet store with something you can't buy online Genetic testing is coming of age, but for consumers it's buyer beware Tech 'FAANG' was the most-crowded trade in the world heading into the Netflix implosion, survey shows Netflix weak subscriber growth may indicate a 'maturity wall' that could whack the stock even more: Analyst This chart may be predicting the bull market's demise Wall Street says Netflix's stock plunge is a ‘compelling’ buying opportunity because the streaming giant ‘never misses twice’ Tesla sinks after Musk tweets, again Boeing announces new division devoted to flying taxis Stocks making the biggest move premarket: NFLX, UNH, GS, AMZN, WMT & more Deutsche Bank downgrades Netflix, but says big subscriber miss is not 'thesis changing' IBM is experimenting with a cryptocurrency that’s pegged to the US dollar North Korea and Zimbabwe: A friendship explained Virgin Galactic spinoff Orbit to launch rockets from the UK with space deal Artificial intelligence will create more jobs than it destroys? That’s what PwC says ‘Treasonous’ Trump and ‘Putin’s poodle:' Scathing headlines follow the Trump-Putin summit China’s fintech companies offer ‘enormous’ opportunity, investment manager says Trump's performance at summit with Putin was 'unprecedented,' experts say Walmart and Microsoft link up on cloud technology as they both battle Amazon European stocks seen mixed amid earnings; Fed’s Powell to address Congress How I knew I should quit my day job and run my start-up full-time: Viral website founder China's stocks have been trounced, but the trade war may ultimately be good news for those shares Billionaire tech investor Peter Thiel bets on crypto start-up Block.one Asian shares subdued open after mixed close on Wall Street; energy stocks under pressure Amazon cloud hits snags after Amazon Prime Day downtime Netflix isn't doomed by one quarter unless people start questioning the long-term investor thesis Tech stocks set to sink on Tuesday after rough evening for ‘FANG’ Netflix plummets after missing big on subscriber growth This wristband lets humans control machines with their minds The U.S. has a rocky history convincing Russia to extradite computer criminals Amazon suffers glitches at the start of Prime Day Jeff Bezos is now the richest man in modern history 'The United States has been foolish': Read Trump and Putin's full exchange Goldman Sachs recommends these 5 highly profitable companies — including Nvidia — to combat rising inflation Goldman Sachs releases 'tactical' stock picks for this earnings season Three red flags for Netflix ahead of its earnings report The bond market may be raising recession fears, but don't expect one anytime soon Cramer: Banks are 'making fortunes' but are still as hated as they were during the financial crisis Putin told Trump at summit: Russia never meddled in US election

Investment

Investors posted solid returns even if they bought just as financial crisis erupted 10 years ago

Investing in the stock market a decade ago today was, in retrospect, an awful way to treat your money.

That’s when the global financial crisis began to erupt with the halting of withdrawals from some BNP Paribas funds, ushering in eighteen months of wealth destruction and economic peril.

Perhaps surprisingly, though, that money put into stocks at such a bad time would have been treated reasonably well since then by the markets — for those who resisted the natural human flight instinct and held tight during a few scary years that followed.

In the ten years since the crisis got rolling, the Standard & Poor’s 500 index has returned 7.8 percent, annualized, including dividends. That’s not far below the very long-term average yearly return of just under 10 percent. So a very unlucky investor who climbed into equities as they were about to careen off a cliff hasn’t been hurt too badly.

A standard portfolio mix of stocks and bonds, as reflected in the Vanguard Balanced Index Fund, has returned a decent 6.8 percent over the same span, with roughly half the downside volatility experienced by the S&P 500.

Clearly, the passage of time in the markets can help make up for bad timing. In this case, too, an investor has been aided by the most aggressive central-bank support programs ever conceived, a long corporate profits boom and one of the longest bull markets in history, which has taken equity valuations to the upper end of their historical range.

See it as yet another bit of evidence supporting the virtues of patience in buying and holding stocks for the long term.

Yet the benefits of hindsight are not available in the moment, and this comforting retrospective makes it easy to overlook both how easy it was to be enticed into the market in August 2007, and how easy it would’ve been to bail out as things got ugly in the months and years that followed.

From today’s perch, the ominous signs that would lead to the crisis and bear market might seem clear. Mortgage defaults were rising, a few aggressive subprime lenders had failed, Bear Stearns was forced to close some internal hedge funds, the Federal Reserve had ceased a multi-year rate-hiking campaign because the economy looked a bit fragile.

In the summer of 2007, though, this all did not seem to be decisive threats to what was at that point a decent little bull market following the tech meltdown of 2000-2002. Stocks had been rising nicely for five years, gaining about 12 percent a year with dividends.

The market seemed reasonably valued, at just 15-times forecast earnings for the following year – about the same multiple as a few years earlier and well below the current 17.8-times. Investment pros frequently cited the lack of retail-investor participation as a reason that stocks had plenty of room to run higher.

On Aug. 9, 2007, the day the BNP fund closures sparked a swift stock selloff, a CNN/Money market wrap-up concluded:

“Concerns about credit and the housing market aren’t likely to disappear anytime soon…Yet, going forward, the equity market is probably in a better place to absorb the unrest than it was a month ago, since many of the stock indexes are well off their 2007 highs.”

Even that December, two months after the market crested, Wall Street strategists as a group would still be predicting a 10 percent gain for the S&P 500 for 2008. Abby Joseph Cohen of Goldman Sachs that month said, “We expect the U.S. economy to show the strains of the deflating housing market and credit-market disruptions in early 2008. [But] recession likely will be avoided, due to strength in exports and capital spending by corporations and government.”

As the financial contagion spread from subprime mortgages to the entire credit market and then to the real economy, stocks were liquidated, losing 20 percent from their peak and earning bear-market status by mid-September of 2008. Good, long-term investors are trained to add market exposure on big downturns, right?

Well, buying the market at a 20 percent discount at that moment meant loading up right before Lehman Brothers failed, throwing the financial system into unprecedented disarray and driving an all-out liquidation of stocks.

By the time stocks would bottom in March 2009 with the Dow just under 7000 — after a number of violent, fleeting rallies — the investor who got into stocks on Aug. 9, 2007, was down 47% and the conservative Vanguard Balanced fund was off 26 percent, in just 17 months. Pimco’s revered bond-fund chief Bill Gross was raising the prospect of the Dow falling all the way to 5000 and the talk was of another Great Depression, or perhaps a lost generation for investors.

So, yes, it was tough to ignore the drama and stick to a long-term investing strategy. And perhaps it was almost as hard to stick it out and add to equities through the European debt crisis and debt-ceiling standoff of 2011 and assorted recession scares and Fed-centered bouts of anxiety since. A buyer of the S&P 500 ten years ago had to wait four-and-a-half years just to get back to even (including dividends), and the balanced-fund buyer spent more than two years under water.

(Ben Carlson of Ritholtz Wealth Management recently wrote a few years ago about a hypothetical “world’s worst market timer,” drawing some useful lessons from the exercise.)

At multiple points along the way up through 2010, the trailing ten-year return on U.S. stocks was negative, testing the nerve of investors raised to believe that the market is almost always a good bet.

The fact that time and an economic rebound and market revival have bailed out the ill-timed investments of August 2007 should be comforting, in this regard — while also acting as a reminder that fortune favors those with patience, a plan and a high pain threshold.

Source: Investment Cnbc
Investors posted solid returns even if they bought just as financial crisis erupted 10 years ago

Comments are closed.