Stock Market Musings

I happened to be speaking with an acquaintance of mine about the stock market. The acquaintance can be best described as "Cranky Old Man". Cranky Old Man advised me that he recently had a meeting with his financial advisor and "read him the riot act" regarding losses he sustained in the stock market in 2008. He said that he advised his advsior to sell all of his stocks and mutual funds and to put everything into money market funds.

Now of course, any investment strategy takes into consideration one's goals with regards to the money at issue, age, timeframe for when you may need the money etc and diversification is important. Cranky Old Man is a bit older than I and is much closer to his "retirement" years than I am. "Retirement" is in quotes here because I do not get the sense that Cranky Old Man has saved much money over the years as he appears to be just scraping by so I do not know if retirement would ever be an option for him economically. Further, Cranky Old Man has some health issues which may prevent him from reaching retirement age.

Returning to the discussion with Cranky Old Man, I was a little unsure as to how to respond to him but decided to just "be straight" with him. I advised him very nicely that 99% of investors lost money in the market last year as we are obviously in a down market and it is unlikely that any financial advisor could have foreseen this and then crafted a portfolio to somehow avoid a loss in 2008. I told him that by selling at this time, it appeared that he had just turned a paper loss into an actual loss; in effect "booking" his losses. By doing this, he essentially bought high and sold low and to an extreme degree. Had he maybe thought about hanging in there with his investments, he would have experienced the stock market rallies (and perhaps some very big ones) that will be part of the inevitable economic recovery. To sell everything at this point is to really to bet on an upcoming depression which does not appear anywhere on the horizon.

Cranky Old Man did not appear to be expecting this response as he apparently was anticipating that I would agree with him that this was all the fault of his economic advisor. He responded in a quite condescending tone that "There is no way that the market will go up and it will keep going down and everybody knows this."

I offered my opinion that it is possible that the market has already bottomed out or will do so very soon such that the economic recovery and the stock market rallies could soon be at hand. I then said "It is not like the market will fall to zero." He looked at me like I was crazy and responded with a very exasperated "You don't think so?!" and walked away shaking his head as if he just got done talking to a crazy man.

On second thought, maybe he should not be in the market after all.