Uh-Oh! Here We Go Again

From this weekend’s WSJ:

The market’s record-breaking spree has raised a new fear in many American households—dread that they are missing out on big gains.

When stock prices collapsed in 2008, the bear market wiped out half of the savings of Lucie White and her husband, both doctors in Houston. Feeling “sucker punched,” she says, they swore off stocks and put their remaining money in a bank.

This week, as the Dow Jones Industrial Average and Standard & Poor’s 500-stock index pushed to record highs, Ms. White and her husband hired a financial adviser and took the plunge back into the market.

“What really tipped our hand was to see our cash not doing anything while the S&P was going up,” says Ms. White, a 39-year-old dermatologist in Houston. “We just didn’t want to be left on the sidelines.”

“We just didn’t want to be left on the sidelines.”

Sounds familiar, doesn’t it?

1. Sell everything after the market crashes.

2. Put it all in the bank (meanwhile the market turns back up again).

3. Time passes and suddenly they’re reading and hearing about the stock market reaching all-time highs.

4. Feel like they’re missing out.

5. Dive back into stocks at an all time high.

It’s the exact opposite of buy low, sell high.

This couple is just now in their late 30s. They should have never have gotten out of stocks completely. Rather, they should have had an allocation plan and should have utilized dollar-cost averaging to take advantage of lower stock prices during 2008 and 2009.

I have a feeling this couple’s going to get burned again.


6 thoughts on “Uh-Oh! Here We Go Again”

  1. Sadly, I think this is how so many wealthy hedge funds and such continue to get richer, by bleeding dry the retail investors with this sentiment. They ‘allow’ the markets to go higher, wait for the money to flow in, start selling which drives the market down, and strip the retail investors of their money. Rinse, lather, and repeat a few years later, and its why the rich get richer and the middle class don’t get the full advantage of the rising markets.

    1. Money Beagle,

      I think you are spot on. These two paragraphs from the same article bothered me (bold mine):

      Some market watchers point out that Main Street investors tend to embrace stocks with enthusiasm only after major rallies like this one. That exposes such investors to the risk of buying near the end of a rally—and suffering when stocks turn lower.

      But in mid-March, big-time stock-market strategists at Goldman Sachs Group Inc., GS -0.40% Morgan Stanley MS -0.14% and other financial firms fueled further optimism by predicting an even higher surge. They cited stimulus policies from central banks around the world and the likelihood of strong profit growth as economies heal.

  2. That is another way of saying, “A fool and his money are soon parted.”

    I have been in the stock market for years. I do not care whether the market is going up or going down. If it is going up, then what I have in there is earning more. If it is going down, then what I am putting in now will go up more in the future.

  3. WOW!!! Someone needs a new financial advisor.

    I’m selling today and putting money into some distressed properties. I’ll put a little money in them and when the Fed trashes the market again, I’ll sell the properties and get back in the market, hopefully close to the bottom.

  4. Good old buy high and sell low, a partner of get rich quick and lose weight quickly and easily. People don’t want to live in the real world.

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