Thursday, December 31, 2009

Looking back over 2009- Stocks

Wow!  Stock returns for 2009 were superb, particularly that part of the year from the lows reach March 9 of this year.  With a return of 28% year-to-date and 69% from March 9th to present, the S&P 500 demonstrates how well stocks did.

Stocks of developed international markets did even better, in part due to currency gains from a weak dollar.  The index known as MSCI EAFE is the generally accepted benchmark for these markets, and has a year-to-date return of 31%.

Leading the pack in stock returns were the emerging markets of countries like China, India and Brazil.  The return for the MSCI index for emerging markets year-to-date is 78%.  These stocks went down quite a bit more than developed markets in 2008, so they were coming from lower levels.  Also, they benefited from investor sentiment that sees these countries as the primary driver of worldwide economic growth for years to come.

So 2009 taught us that there are recoveries after the stock lows brought about by forced selling of those who must deleverage and emotional selling of those who got scared and followed.  Investors who really prospered maintained their discipline, followed their allocation plan, and even better identified opportunities that the tidal waves of selling created.  There was much to learn from 2009 and those who tried to time the market or who reacted emotionally and sold at the lows paid a big price for the lesson.  Let's hope investors can remember these lessons for a while.