Two-Year Anniversary of Market Bottom

Today marks the 2-year anniversary of the bear market bottom on March 9, 2009, when the S&P 500 closed at 676.53. Today, March 9, 2011, the S&P 500 closed at 1320.02—an increase of about 95% from the bottom (it’s almost doubled), not including reinvested dividends.

Although the S&P 500 still is about 16% below the closing high of 1565.15 on October 9, 2007, those of us who continued to invest in stock index funds during the darkest days of the bear market have more than recovered our losses. Those who panicked and sold at low levels, and who remained fearful and did not buy back in before the tremendous gains in 2009, have suffered severe losses. Of course things could have turned out differently, and there certainly are more bear markets in our future, but at least for now, those of us who braved the storms can pause and reflect on our good fortune (at least with respect to the stock market over the last 2-3 years).

I remember vividly the anxiety during the plunging markets of late 2008 and early 2009. I remember purposely avoiding exposing myself to any information about the stock market except once each week, when I would screw up my courage and move more money from cash into stock and bond index funds. I remember how hard it was to use the rational part of my brain—to draw on my knowledge of stock market history and theory—to overcome the emotional part of my brain that was terrified at the losses that were occurring. I remember managing the fear, and mustering my rationality to encourage friends and family to stay the course, and to continue buying stocks at prices that may turn out to be the deal of our lifetimes.

This is a good day to remember that the best time to buy stocks often is when the market is plunging and pessimism is rampant, although it’s also the hardest time to buy. It’s much easier to buy when the market is steadily rising, and when people are generally optimistic, but these often turn out to be the times that precede subsequent market losses. Now we’re in a mixed situation—the market has been generally rising, but pessimism still abounds; unemployment is high, debt and deficits are high, and the national housing market is not yet recovering. What usually has worked well through all of these scenarios is sticking to a well designed investment plan, and using your plan to help overcome fear during scary markets, and moderate greed during ebullient markets.