Happy birthday, Bull Market. Back on March 9, 2009, it was far from clear that we had reached the bottom of the second worst bear market of all time and the start of an extended rally. Rather, it was tempting to succumb to despair. Many did.
One contributor to Morningstar.com's discussion boards started a thread called "Throwing in the Towel" that day and lamented, "For decades I dollar cost averaged and kept buying when the market went down. ... No more. Bought gold for the first time and am ready to take a modest position in a bear market fund." Later the poster admitted to putting $10,000 in Grizzly Short .
Wrong move. The broad market has vaulted a wall of worry since then. Vanguard Total Stock Market Index displayPTip('VTSMX', 'VTSMX','YTD', '', '', '', '', '', '','msg','P'); has gained nearly 45% annualized through March 8, 2011, albeit with a few jarring pauses, such as May 2010's flash crash. Meanwhile, Grizzly Short has done exactly what it's supposed to do--go in the opposite direction of the broad stock market. It's lost more than 45% annualized in that span. That $10,000 investment was worth less than $3,000 on March 8, 2011. Gold bullion exchange-traded funds have fared better, rising nearly 23% over the time period, but still lagged the U.S. stock market.
Humble PieDon't get smug, though. Most investors didn't make precisely the same error in March 2009 as did the reader cited above. But too many did make unfortunate choices. More than $465 million flowed out of the bear market category in March 2009, according to Morningstar flow data. That money didn't flow to stocks, though. Domestic and international stock funds saw more than $25 billion in outflows that month, while bond funds took in nearly $22 billion.
If you've paid attention to Morningstar's buy the unloved study over the years, you know where I'm going with this. Stock funds have crushed bond funds in the two years ending March 8, 2011, gaining 47% to 14% for taxable-bond funds and 6% for municipal fixed-income funds.
The fund categories investors were dumping the most back in March 2009--large growth, large value, and world stock"”haven't been the best-performing groups since the market's bottom. But they've been impressive gaining between 40% and 42% annualized each.
What We Were Selling Two Years Ago
Morningstar Category Estimated Net Flow, March 2009 % Annualized Total Return, March 9, 2009, to March 8, 2011 Large Growth -6,123,019,769 40.0 Large Value -4,353,143,348 41.1 World Stock -3,670,167,805 41.7
What We Were Buying Two Years Ago
Morningstar Category Estimated Net Flow, March 2009 % Annualized Total Return, March 9, 2009, to March 8, 2011 Intermediate-Term Bond 9,415,561,125 11.9 Short-Term Bond 3,298,044,385 6.8 Intermediate Government 2,865,454,388 5.0
You didn't lose money by opting for one of the most popular fund categories in March 2009--intermediate-term government, short-term bond, and intermediate-term bond. The typical intermediate government and short-term bond gained 5% and nearly 7%, respectively, through March 8. And the average intermediate-term bond fund advanced 11.9% as corporate bonds that were priced for the apocalypse snapped back. The high-yield bond category, which took in $2.5 billion in flows in March 2009, rose 32% for similar reasons. Those are nice results, but the opportunity costs for sitting out the equity rally in most fixed-income categories have been huge.
Cashing OutA modest number of investors were brave enough to invest in the best-performing categories of the trailing two years. Small-value funds took in $117 million in March 2009 and have jumped nearly 57% since then. Diversified emerging markets also accepted $500 million in inflows that month, in time to enjoy a 53% rise off the bottom.
For many people back then, though, it wasn't a matter of choosing between stock or bond funds. They were deciding whether to stay invested in any fund at all, as $8.7 billion left mutual funds in March 2009. Some of that money went to ETFs, which took in about $30 million in net new sales that month, but a lot probably went to cash. There's been a high price for that retrenchment. The BarCap US Treasury Bill 1-3 Month Index, a good proxy for cash, has gained 0.14% since the market bottom, which hasn't kept pace with even the low levels of inflation since then.
Equity fund flows recently turned positive in January and February; stock and corporate bond valuations look fuller than they did at the crisis' nadir; and postings on investing discussion forums like Morningstar.com are getting more bullish. A colleague recently noticed this one on Yahoo! Finance: "As a historic bull market reaches its second birthday, everyday (sic) investors are piling back into stocks, finally ready for more risk and hoping the rally has further to go."
Are these contrarian indicators telling us that the rally has grown too long in the tooth and that it's time to take profits and cover up? Only hindsight can answer for sure. The last two years should teach us is that giving into either despair or euphoria can be costly and there is merit to sticking with a simple, well-reasoned, long-term plan.
Return to Discuss
Be Seen. Be Heard. Become a Morningstar Contributor.Reach a readership of advisors, professionals, and active investors. Submit your commentaries for publication on Morningstar.com.
Securities mentioned in this article Ticker Price($) Change(%) Morningstar Rating Morningstar Analyst Report With Morningstar Analyst reports you can get our expert Buy/Sell opinions on over 3,900 Stock and Funds Dan Culloton does not own shares in any of the securities mentioned above. Find out about Morningstar's editorial policies. Video Reports Gross Zeros Out Exposure to... More Videos... Most Popular Related News Also in Fund Spy Sponsored Links Buy a Link Now Sponsor Center Please Wait... USA_VTSMX,USA_GRZZX FO_USA_VTSMX FO_USA_GRZZX &primaryKeyword= 2 {CommentWebService} OAS_AD('Bottom'); Content Partners Site Directory Site Map Our Products Corrections Help Advertising Opportunities Licensing Opportunities Glossary RSS Mobile Portfolio Affiliate Careers Company News International Sites: Australia Canada China France Germany Hong Kong Italy The Netherlands Norway Spain U.K. Stocks by: Title Ticker Popularity Interest Funds by: Title Symbol Popularity Interest Articles by: Title Date Popularity Interest Stock Groups by: Popularity Interest Favorites Title Fund Groups by: Popularity Interest Favorites Title Article Groups by: Popularity Interest Favorites Title Premium Stocks by: Title Ticker Popularity Interest Premium Funds by: Title Symbol Popularity Interest Premium Articles by: Title Date Popularity Interest Independent. Insightful. Trusted. Morningstar provides stock market analysis; equity, mutual fund, and ETF research, ratings, and picks; portfolio tools; and option, hedge fund, IRA, 401k, and 529 plan research. Our reliable data and analysis can help both experienced enthusiasts and newcomers. © Copyright 2010 Morningstar, Inc. All rights reserved. Please read our Terms of Useand Privacy Policy.Dow Jones Industrial Average, S&P 500, Nasdaq, and Morningstar Index (Market Barometer) quotes are real-time. Russell 2000 quote is 10 minutes delayed. var HeaderBox = initBoxQuote("AutoCompleteBox","AutoCompleteDropDown"); HeaderBox.IdleDisplayMsg = ""; HeaderBox.LocalRegion="USA"; HeaderBox.SetPreference('USA','EN',32); var FooterBox = initBoxQuote("AutoCompleteBoxFooter","AutoCompleteDropDownFooter"); FooterBox.IdleDisplayMsg = ""; FooterBox.LocalRegion="USA"; FooterBox.SetPreference('USA','EN',32); //clears all content/image boxes-------------------------------------------------------------------------------------- var imageIDs=new Array('siteDirectoryContent', 'siteMapContent', 'productsContent'); //content boxes .mi_row3{display: none} var _gaq = _gaq || []; _gaq.push(['_setAccount', 'UA-16669347-1']); _gaq.push(['_setDomainName', '.morningstar.com']); _gaq.push(['_trackPageview']); (function() { var ga = document.createElement('script'); ga.type = 'text/javascript'; ga.async = true; ga.src = ('https:' == document.location.protocol ? 'https://ssl' : 'http://www') + '.google-analytics.com/ga.js'; var s = document.getElementsByTagName('script')[0]; s.parentNode.insertBefore(ga, s); })(); var Name = $('meta[name=DC.Creator]').attr("content").split(','); var Title = $('meta[name=DC.Title]').attr("content"); var URL = window.location.href; var Author = Name[1] + " " + Name[0]; var PubDate = $('meta[name=DC.Date]').attr("content"); _gaq.push(['_trackEvent', 'Article Title From Morningstar', Title, URL]); _gaq.push(['_trackEvent', 'Author Name From Morningstar', Author, URL]); _gaq.push(['_trackEvent', 'Article URL From Morningstar', URL, Title + "(by " + Author + " on " + PubDate + ")"]); _gaq.push(['_trackEvent', 'Publish Date From Morningstar', PubDate, URL]); _gaq.push(['_trackEvent', 'Article Title', Title, URL]); _gaq.push(['_trackEvent', 'Author Name', Author, URL]); _gaq.push(['_trackEvent', 'Article URL', URL, Title + "(by " + Author + " on " + PubDate + ")"]); _gaq.push(['_trackEvent', 'Publish Date', PubDate, URL]);Wrong move. The broad market has vaulted a wall of worry since then. Vanguard Total Stock Market Index has gained nearly 45% annualized through March 8, 2011, albeit with a few jarring pauses, such as May 2010's flash crash. Meanwhile, Grizzly Short has done exactly what it's supposed to do--go in the opposite direction of the broad stock market. It's lost more than 45% annualized in that span. That $10,000 investment was worth less than $3,000 on March 8, 2011. Gold bullion exchange-traded funds have fared better, rising nearly 23% over the time period, but still lagged the U.S. stock market.
Humble PieDon't get smug, though. Most investors didn't make precisely the same error in March 2009 as did the reader cited above. But too many did make unfortunate choices. More than $465 million flowed out of the bear market category in March 2009, according to Morningstar flow data. That money didn't flow to stocks, though. Domestic and international stock funds saw more than $25 billion in outflows that month, while bond funds took in nearly $22 billion.
If you've paid attention to Morningstar's buy the unloved study over the years, you know where I'm going with this. Stock funds have crushed bond funds in the two years ending March 8, 2011, gaining 47% to 14% for taxable-bond funds and 6% for municipal fixed-income funds.
The fund categories investors were dumping the most back in March 2009--large growth, large value, and world stock"”haven't been the best-performing groups since the market's bottom. But they've been impressive gaining between 40% and 42% annualized each.
What We Were Selling Two Years Ago
Morningstar Category Estimated Net Flow, March 2009 % Annualized Total Return, March 9, 2009, to March 8, 2011 Large Growth -6,123,019,769 40.0 Large Value -4,353,143,348 41.1 World Stock -3,670,167,805 41.7
What We Were Buying Two Years Ago
Morningstar Category Estimated Net Flow, March 2009 % Annualized Total Return, March 9, 2009, to March 8, 2011 Intermediate-Term Bond 9,415,561,125 11.9 Short-Term Bond 3,298,044,385 6.8 Intermediate Government 2,865,454,388 5.0
You didn't lose money by opting for one of the most popular fund categories in March 2009--intermediate-term government, short-term bond, and intermediate-term bond. The typical intermediate government and short-term bond gained 5% and nearly 7%, respectively, through March 8. And the average intermediate-term bond fund advanced 11.9% as corporate bonds that were priced for the apocalypse snapped back. The high-yield bond category, which took in $2.5 billion in flows in March 2009, rose 32% for similar reasons. Those are nice results, but the opportunity costs for sitting out the equity rally in most fixed-income categories have been huge.
Cashing OutA modest number of investors were brave enough to invest in the best-performing categories of the trailing two years. Small-value funds took in $117 million in March 2009 and have jumped nearly 57% since then. Diversified emerging markets also accepted $500 million in inflows that month, in time to enjoy a 53% rise off the bottom.
For many people back then, though, it wasn't a matter of choosing between stock or bond funds. They were deciding whether to stay invested in any fund at all, as $8.7 billion left mutual funds in March 2009. Some of that money went to ETFs, which took in about $30 million in net new sales that month, but a lot probably went to cash. There's been a high price for that retrenchment. The BarCap US Treasury Bill 1-3 Month Index, a good proxy for cash, has gained 0.14% since the market bottom, which hasn't kept pace with even the low levels of inflation since then.
Equity fund flows recently turned positive in January and February; stock and corporate bond valuations look fuller than they did at the crisis' nadir; and postings on investing discussion forums like Morningstar.com are getting more bullish. A colleague recently noticed this one on Yahoo! Finance: "As a historic bull market reaches its second birthday, everyday (sic) investors are piling back into stocks, finally ready for more risk and hoping the rally has further to go."
Are these contrarian indicators telling us that the rally has grown too long in the tooth and that it's time to take profits and cover up? Only hindsight can answer for sure. The last two years should teach us is that giving into either despair or euphoria can be costly and there is merit to sticking with a simple, well-reasoned, long-term plan.
Return to Discuss
Be Seen. Be Heard. Become a Morningstar Contributor.Reach a readership of advisors, professionals, and active investors. Submit your commentaries for publication on Morningstar.com.
Securities mentioned in this article Ticker Price($) Change(%) Morningstar Rating Morningstar Analyst Report With Morningstar Analyst reports you can get our expert Buy/Sell opinions on over 3,900 Stock and Funds Dan Culloton does not own shares in any of the securities mentioned above. Find out about Morningstar's editorial policies. Video Reports Gross Zeros Out Exposure to... More Videos... Most Popular Related News Also in Fund Spy Sponsored Links Buy a Link Now Sponsor Center Please Wait... USA_VTSMX,USA_GRZZX FO_USA_VTSMX FO_USA_GRZZX &primaryKeyword= 2 {CommentWebService} OAS_AD('Bottom'); Content Partners Site Directory Site Map Our Products Corrections Help Advertising Opportunities Licensing Opportunities Glossary RSS Mobile Portfolio Affiliate Careers Company News International Sites: Australia Canada China France Germany Hong Kong Italy The Netherlands Norway Spain U.K. Stocks by: Title Ticker Popularity Interest Funds by: Title Symbol Popularity Interest Articles by: Title Date Popularity Interest Stock Groups by: Popularity Interest Favorites Title Fund Groups by: Popularity Interest Favorites Title Article Groups by: Popularity Interest Favorites Title Premium Stocks by: Title Ticker Popularity Interest Premium Funds by: Title Symbol Popularity Interest Premium Articles by: Title Date Popularity Interest Independent. Insightful. Trusted. Morningstar provides stock market analysis; equity, mutual fund, and ETF research, ratings, and picks; portfolio tools; and option, hedge fund, IRA, 401k, and 529 plan research. Our reliable data and analysis can help both experienced enthusiasts and newcomers. © Copyright 2010 Morningstar, Inc. All rights reserved. Please read our Terms of Useand Privacy Policy.Dow Jones Industrial Average, S&P 500, Nasdaq, and Morningstar Index (Market Barometer) quotes are real-time. Russell 2000 quote is 10 minutes delayed. var HeaderBox = initBoxQuote("AutoCompleteBox","AutoCompleteDropDown"); HeaderBox.IdleDisplayMsg = ""; HeaderBox.LocalRegion="USA"; HeaderBox.SetPreference('USA','EN',32); var FooterBox = initBoxQuote("AutoCompleteBoxFooter","AutoCompleteDropDownFooter"); FooterBox.IdleDisplayMsg = ""; FooterBox.LocalRegion="USA"; FooterBox.SetPreference('USA','EN',32); //clears all content/image boxes-------------------------------------------------------------------------------------- var imageIDs=new Array('siteDirectoryContent', 'siteMapContent', 'productsContent'); //content boxes .mi_row3{display: none} var _gaq = _gaq || []; _gaq.push(['_setAccount', 'UA-16669347-1']); _gaq.push(['_setDomainName', '.morningstar.com']); _gaq.push(['_trackPageview']); (function() { var ga = document.createElement('script'); ga.type = 'text/javascript'; ga.async = true; ga.src = ('https:' == document.location.protocol ? 'https://ssl' : 'http://www') + '.google-analytics.com/ga.js'; var s = document.getElementsByTagName('script')[0]; s.parentNode.insertBefore(ga, s); })(); var Name = $('meta[name=DC.Creator]').attr("content").split(','); var Title = $('meta[name=DC.Title]').attr("content"); var URL = window.location.href; var Author = Name[1] + " " + Name[0]; var PubDate = $('meta[name=DC.Date]').attr("content"); _gaq.push(['_trackEvent', 'Article Title From Morningstar', Title, URL]); _gaq.push(['_trackEvent', 'Author Name From Morningstar', Author, URL]); _gaq.push(['_trackEvent', 'Article URL From Morningstar', URL, Title + "(by " + Author + " on " + PubDate + ")"]); _gaq.push(['_trackEvent', 'Publish Date From Morningstar', PubDate, URL]); _gaq.push(['_trackEvent', 'Article Title', Title, URL]); _gaq.push(['_trackEvent', 'Author Name', Author, URL]); _gaq.push(['_trackEvent', 'Article URL', URL, Title + "(by " + Author + " on " + PubDate + ")"]); _gaq.push(['_trackEvent', 'Publish Date', PubDate, URL]);Humble PieDon't get smug, though. Most investors didn't make precisely the same error in March 2009 as did the reader cited above. But too many did make unfortunate choices. More than $465 million flowed out of the bear market category in March 2009, according to Morningstar flow data. That money didn't flow to stocks, though. Domestic and international stock funds saw more than $25 billion in outflows that month, while bond funds took in nearly $22 billion.
If you've paid attention to Morningstar's buy the unloved study over the years, you know where I'm going with this. Stock funds have crushed bond funds in the two years ending March 8, 2011, gaining 47% to 14% for taxable-bond funds and 6% for municipal fixed-income funds.
The fund categories investors were dumping the most back in March 2009--large growth, large value, and world stock"”haven't been the best-performing groups since the market's bottom. But they've been impressive gaining between 40% and 42% annualized each.
What We Were Selling Two Years Ago
What We Were Buying Two Years Ago
You didn't lose money by opting for one of the most popular fund categories in March 2009--intermediate-term government, short-term bond, and intermediate-term bond. The typical intermediate government and short-term bond gained 5% and nearly 7%, respectively, through March 8. And the average intermediate-term bond fund advanced 11.9% as corporate bonds that were priced for the apocalypse snapped back. The high-yield bond category, which took in $2.5 billion in flows in March 2009, rose 32% for similar reasons. Those are nice results, but the opportunity costs for sitting out the equity rally in most fixed-income categories have been huge.
Cashing OutA modest number of investors were brave enough to invest in the best-performing categories of the trailing two years. Small-value funds took in $117 million in March 2009 and have jumped nearly 57% since then. Diversified emerging markets also accepted $500 million in inflows that month, in time to enjoy a 53% rise off the bottom.
For many people back then, though, it wasn't a matter of choosing between stock or bond funds. They were deciding whether to stay invested in any fund at all, as $8.7 billion left mutual funds in March 2009. Some of that money went to ETFs, which took in about $30 million in net new sales that month, but a lot probably went to cash. There's been a high price for that retrenchment. The BarCap US Treasury Bill 1-3 Month Index, a good proxy for cash, has gained 0.14% since the market bottom, which hasn't kept pace with even the low levels of inflation since then.
Equity fund flows recently turned positive in January and February; stock and corporate bond valuations look fuller than they did at the crisis' nadir; and postings on investing discussion forums like Morningstar.com are getting more bullish. A colleague recently noticed this one on Yahoo! Finance: "As a historic bull market reaches its second birthday, everyday (sic) investors are piling back into stocks, finally ready for more risk and hoping the rally has further to go."
Are these contrarian indicators telling us that the rally has grown too long in the tooth and that it's time to take profits and cover up? Only hindsight can answer for sure. The last two years should teach us is that giving into either despair or euphoria can be costly and there is merit to sticking with a simple, well-reasoned, long-term plan.
Be Seen. Be Heard. Become a Morningstar Contributor.Reach a readership of advisors, professionals, and active investors. Submit your commentaries for publication on Morningstar.com.
Read Full Article »