Fisher Investments Editorial Staff
Behavioral Finance, Capitalism, US Economy

Feelings and Other Tragedies

By, 03/29/2010

   Story Highlights:

  • Stocks are up hugely from their March 2009 low across most investing categories.
  • Yet, 70% of Americans polled report no portfolio growth.
  • It's very likely many of those reporting no growth have experienced some material growth, but don't feel like they have.
  • Feelings are very often detached from reality in investing.


In Act 1, Scene 2, a soothsayer warns Julius Caesar to beware the Ides of March. Yet, he goes to the Senate anyway, believing "danger knows full well that Caesar is more dangerous than he." Silly Caesar. He should have known speaking about oneself in the third person is a sure-fire sign of hubris (a dangerous feeling) and a good clue one won't live much past Act 3.

What the heck is it with March, anyway? Ten years ago in March, the Tech bubble burst and broader markets peaked before a three-year bear market. March 2003 marked the bottom and the start of another bull. And March 2009 was, yet again, another bottom. And this March starts year two of what appears to be a pretty standard bull market—one where the pop off the bottom about matches speed and shape of the final bear descent.

Indeed, world stocks are up 78% since the March 2009 low. A pretty spectacular 12-month (and a bit) return—and one few thought possible during the Ides of last March. Even more amazing: About 70% of US investors report (in a Bloomberg poll) their portfolios haven't risen since a year ago. Let us say that again—after a historically massive 12-month rise in US and world stocks, 7 out of 10 Americans who own stock, bonds, or mutual funds report zero growth. And among investors with incomes over $100,000, more say they've lost money over the last year than say they've made money.

What happened here? A tragedy of Caesarean proportions? Consider—markets are broadly higher. This rebound wasn't isolated to a few sectors. All major investing categories are higher today than a year ago. Utilities are up 35%—and that's the worst performing sector. Tech is up 88%, Consumer Discretionary 90%, Materials 100%. You get the picture.

Were so many people just sitting in cash while stocks soared? That is tragic, indeed. Or, did so many end up in those relatively few stocks that did badly? And if so, who the heck has been buying and driving stocks up so much?

This puzzle's answer is close at hand. Note: Overwhelmingly, Americans (in the same Bloomberg poll) believe the economy is worse today than a year ago. Yet, Q4 GDP was just revised down Friday—to 5.6%. Q3 ‘09 was also positive and, in all likelihood, Q1 ‘10 will be pretty decent. We could spend hours discussing how feelings normally get detached from investing reality, and how and why that happens. But the point is, right now, the economy is decidedly in better shape than a year ago. It's the feelings that have gone awry.

It's likely the same for most of the 70% who report no growth. It's probably very true many people are in cash and didn't enjoy the massive stock rally. But it's also likely true that overall, for folks who have even some exposure to stocks, portfolios are up—they just don't feel like they are—very typical after a recession and bear market. But feeling something doesn't make it so.

Just ask Brutus. He felt a dead Caesar was better for Rome. And what happened to him? He died while his buddy Antony got the best monologue ("I come to bury Caesar not to praise him." Yeah, right) and the support of the Romans. Plus, Antony lived in the end and got his own sequel. Feelings can be murder . . . for tragic heroes and your portfolio.

All data from Thomson Reuters as of market close 3/25/10.


*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.


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