The Investment Scientist

How Not to Survive in a Flat Market

Posted on: December 31, 2011

Today is the last trading day of 2011. The S&P 500 closed at 1257, exactly the same close as in 2010! So, if your goal is wealth preservation, the market just did it for you.

Or did it?

From January to April, the market staged a four-month rally of 8.5% to peak at 1364 on April 29. For the next six months, it collapsed nearly 20% to bottom at 1098 on Oct. 3. Then, it staged a late rally to close the year at 1257.

At the market peak, I got calls from my clients asking why I kept cash in the account? At the market bottom, I got calls asking why I did not pull out of the market all together? If I had listened to those clients, they would have lost 20% in a flat market.

Investing according to the market’s past performance is like driving by looking in the rearview mirror. It is the quickest way to ruin. Keep that in mind! Next time, when the market goes wild, sit there, don’t just do something.

Get my white paper: The Informed Investor: 5 Key Concepts for Financial Success.

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Michael Zhuang is principal of MZ Capital, a fee-only independent advisory firm based in Washington, DC.


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