Should Investors Be Mad At Markets Or Themselves?

Saturday, August 20, 2011. 11:00 a.m.

A recent survey by Decision Research Inc. shows 58% of investors believe their future will be moderately or greatly limited by the dismal markets of recent years. Only 11% felt they have strong or very strong influence or control over their financial lives.

And 59% said they were moderately or very angry.

They are angry at Wall Street, the markets, their advisors and brokers, and of course the government. A large majority (73%) said they had little to no trust that the Obama Administration would make their investments safer, and 87% said they had little to no trust that Congress, bankers, or brokers will do so.

Yet, while the majority watched the markets and economic reports at least an hour a day in recent weeks, and were concerned and angry, only 6% even bothered to contact a financial advisor for advice. As the Wall Street Journal puts it, they are simply watching with a sense of helpless horror.

But while blaming everyone else, few blame themselves.

That response has not changed since the stock market in the U.S. was established more than 200 years ago.

No matter how many times investors experience the cycles themselves (and read books and articles about it), few learn from the experiences. The market cycles between bull and bear markets on average of every four years (e.g. there have been 25 bear markets in the last 110 years). The typical pattern is to hold and hope through bear markets, or at most only move to so-called defensive stocks and mutual funds that ‘won't decline as much', until the emotional and financial pain become unbearable, and then bail out only after large losses have developed in their portfolios.

The latest research report from Decision Research confirms that the pattern continues, that as I noted in my books, after experiencing large losses, a majority of investors then swear off ‘the damned market for good', and swear they will never buy another stock or mutual fund in their lifetimes.

With the Dow down 16% since its April 29 peak, the S&P 500 down 17%, and the Nasdaq down 18.5%, that part of the pattern is already beginning.

The rest of the pattern is to stick with that determination when the next bull market begins, and while the easy money is being made in it, only finally becoming confident enough to tiptoe back in after they see how much their friends and neighbors have made in the first couple of years of the new bull market.

They then make some profits easily (everything is going up), kick themselves for not having gone back in earlier, and then repeat the cycle all over again, not knowing what to do when the market next rolls over to the downside, and so doing nothing.

Yet for some, a substantial correction or full-fledged bear market are just changes in the investing environment providing opportunities to make just as much or more from downside positions.

Should investors not blame themselves for their losses at least as much as they blame the factors (slowing economies, rising inflation, debt loads, etc.) that create the business and market cycles, or blame themselves as much as they blame the brokerage firms that are in business to sell products to investors, not blame themselves for not learning from previous experiences or looking into research and information that is readily available?

It may be that only 11% feel they have influence or control over their financial lives.

But that is not the way it needs to be. 

 To read my weekend newspaper column ‘Has The Relief Rally Ended Already?' click here!

Yesterday in the U.S. Market.

Another ugly day. The Dow was up almost 100 points at 11 a.m., but gave up the gains and more in the afternoon, reversing 270 points from its intraday high to close down 172 points, or 1.6%. Volume was moderate at 1.5 billion shares traded on the NYSE.

The Dow closed down 172 points, or 1.6%. The S&P 500 closed down 1.5%. The NYSE Composite closed down 1.5%. The Nasdaq closed down 1.6%. The Nasdaq 100 closed down 1.7%. The Russell 2000 closed down 1.6%. The DJ Transportation Avg. closed down 1.8%. The DJ Utilities Avg closed down 0.8%.

Gold closed up $33 an ounce, closing at $1,852 an ounce, another new record high.

Oil closed up $0.32 a barrel at $82.70, but down $2.60 a barrel for the week.

The U.S. dollar etf UUP closed down 0.2%.

The U.S. Treasury bond etf TLT closed up 0.8%.

Yesterday in European Markets.

European markets closed down again yesterday. The London FTSE closed down 1.0%. The German DAX closed down 2.2%. France's CAC closed down 1.9%.

Global markets for the week.

A 4th straight negative week. Further collapses around the world this week as the short-term oversold rally ended after only three positive days.

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Next week's Economic Reports:

Next week will be an average week for potential market-moving economic reports, among them the Chicago Fed's National Business Activity Index, Durable Goods Orders, and the next revision of 2nd quarter GDP growth.

To see the full schedule of the week's reports click here, and look at the left side of the page it takes you to.

To read my weekend newspaper column ‘Has The Relief Rally Ended Already?' click here!

Subscribers to Street Smart Report: There is a very important hotline from Thursday morning in the subscriber section of the Street Smart Report Online, and the new issue of the newsletter is on the website from Wednesday.

I'll be back with the next regular blog post on Tuesday morning at 9:25 a.m. Have a great weekend!

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