The stock market expansion that followed the financial crisis became known as the most hated bull market ever.
Despite the tremendous growth and wealth creation, the share of retail investors in the stock market has actually declined from ~65% before the financial crisis to about 55% a decade later.
It makes sense. Back in the day, it felt like the world was about to collapse. It didn’t help that all kinds of experts were quick to jump on the doomsayer bandwagon.
It’s had to muster enthusiasm to invest when you are nursing a 50% loss in your investment account. As a result, more and more people stayed on the sidelines – and grew ever more frustrated as the market continued its unstoppable march forward.
In the meantime, this happened
A decade on, the situation isn’t much different. The recent stock market moves just make no sense.
A record number of casualties? The market ticks up.
Highest-ever jobless claims? Immediate spike.
Eurozone about to disintegrate? Up we go again!
Hating On The Stock Market
There are many reasons why you might feel like the stock market is your worst enemy right now.
Perhaps you got scared and sold up over the past few weeks. You locked in the losses and are now kicking yourself, having seen the S&P rally 17% in just seven days.
Alternatively, you may have paused your regular contributions. It made no sense to do that when the value of your money was being decimated the moment it hit your account. Now you are looking at buying the same thing – at a 17% premium.
Then there’s the prospect of a cash crunch. With so much uncertainty, it’s perfectly rational to increase a solid buffer of cash in your bank account to ride out any near-term challenges.
Perhaps you have a fully funded emergency fund AND were brave enough to buy the dip – but put your money in a few individual stocks that seemed to have much more upside. I mean, it makes no sense that AA stands still while everyone else roars ahead.
Finally, you could have given your money to the professionals. Unfortunately, despite possibly having the best intentions they are also struggling to make sense of the situation. In addition, specific “smart money” handicaps are possibly leaving you with suboptimal returns.
Don’t Hate – Recalibrate
There’s nothing wrong about having done one or more of the things above – and feeling mighty unhappy about it.
However, instead of engaging in the highly unproductive activity of kicking yourself, you are much better off using the opportunity to recalibrate your investment strategy.
All it takes is a few simple tweaks.
First of all, don’t even go near the stock market if you haven’t got a big enough emergency fund.
You’ll have to come up with your own definition of “big enough” as it means different things for different people. For example, my job is highly volatile, so we usually keep a year’s worth of expenses in cash.
Yes, you’ll miss out on some gains when the market goes up. You’ll also avoid a fire sale when it goes down – and improve the quality of your sleep along the way.
Secondly, please don’t try to time the stock market. Even though it’s highly rational in the long term, it’s anything but that on a day-to-day basis. Always has been, always will be. The sooner you accept it, the wealthier you will become.
Remember: in the stock markets, average ≠ bad. Average is actually pretty damn good – because you outperform the vast majority of actively managed funds.
When it comes to building wealth, the stock market is one of the best allies you could ask for. So give the things above a shot and who knows – you may well fall in love with it again.