This month, we observed an unusual two-year anniversary: 24 months from the low point in the global markets, the point of maximum pain and panic following the 2008 economic meltdown and so-called Great Recession.
On March 9, 2009, the S&P 500 had fallen to its low of 676, the lowest it had been in 13 years (1996). Since then, the S&P index has gone up about 95%, bringing it within 15% of its record high in 2007. The Russell 2000 index, which tracks small cap stocks, has gone up 140% in the same period, and the MSCI Emerging Markets Index is up 122%.
If you look back at the economic forecasts and market reports in March two years ago, you won’t find a prediction that the markets would recover as they have. There was even some doubt whether the U.S. economy would survive intact, and the most common prediction was deflation, continued recession and more downside in the stock markets.
In retrospect, this most frightening time was the ideal time to go all in and bet everything on a stock market recovery–but who had the intestinal fortitude for that? After all the losses, few had the stomach, or the heart, to bet on a robust recovery. Many actually did the opposite, pulling all their money out and “waited for things to settle,” thereby missing the climb back up – a double whammy.
This is a terrific lesson in the value of disciplined investing; the consensus and our own gut feelings are often wrong and inevitably point us in the opposite direction from where the returns are going to come from next. Consistent rebalancing is important for many reason, one of which is to protect us from our own gut feelings. It is a technique we employ to help remove the emotions from investing, even if those emotions seem rational.