Sunday, February 10, 2008

Market Woes

The S&P 500 was down 6% in January and is down 9.3% for 2008. That's a terrible start to the year. European and emerging markets were down > 10%. In fact, this article states that, in aggregate absolute terms, the world stockmarkets lost 5.2 TRILLION dollars in January.;_ylt=ArKqpKiHIGQyzFBxE5vMuKsDW7oF

My question to everybody out there is, where does that money go? How can there be a net loss of money? Doesn't the money go somewhere? For every trade, isn't there a buyer and seller? Did hedge funds that were "shorting" the market MAKE 5.2 trillion?

Also, although the market was bad last month, check out this chart from the greatest stock market crash of all-time from the Great Depression in the 1930s. I cannot even imagine the pain people must have been feeling, both from the terrible economy (no jobs or low wages), and all of the losses in the market (from 9/3/29 to 7/8/32, the market was down 89.2%).

But, folks, don't be down about this downturn. Remember that the average bear market only lasts around 6 months, and the average recession lasts about 10 months. Plus, look at this article in the following link. The market was actually increased in 5 of the last 9 recessions. And, look at the column in Table 1 demonstrating the 3 and 10 year returns from the start of the recession. All are significantly higher.

Bottom line, is that these next few weeks to months will actually be a great time to buy equities "on sale", and if you can stomach it and wait it out, your diligence and patience will pay off.

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