The Lost Decade? Not for our clients.

David Christianson, CFP, R.F.P., TEP

The Globe and Mail recently called the last ten years on the stock market “The Lost Decade”, during which time the Toronto Stock Exchange index grew by less than 4% annually (39.6% total) and the broad American stock index actually declined 24.1%, even before currency damage.

Most individual investors did much worse, after piling into stocks in 2000 (as the internet bubble started to burst), and then pulling out in exasperation in 2003, only to miss part of the subsequent five year rally. Stock ownership then peaked again in 2008, due to low interest rates and investors forgetting about the concept of risk.

In other words, lots of people continued to buy high and sell low.

When several of our clients asked “Why have we done so much better?”, we set out to answer that question.  It seems the answer is important, if the techniques can be repeated and shared with others.

Why did our clients do so much better?

It turns out the answer is following some basic fundamentals, which can be difficult in the heat of battle. Here are the identified reasons, none of which required a knowledge of rocket science or quantum physics:

  1. They spent within their means.
  2. They stuck to the plan and our advice, and avoided acting on panic and greed.
  3. We never sold stocks at market lows. Instead, we added to stocks when low, when cash was available.
  4. We were never seduced into increasing stock weightings when the markets looked invincible, after long rises.
  5. We avoided trendy (but later fatal) investments like internet stocks, Nortel, US banks and mortgage companies, and artificial “manufactured” products.
  6. We looked for genuine bargains and took advantage of other people’s panic.
  7. We do not watch BNN, CNBC or put too much stock in what we read in the papers.

 

At this time last year, we were suggesting investing in undervalued securities like high yield bonds, preferred shares and Canadian dividend-paying stocks, while avoiding the US dollar. To us, all of this was simply common sense. Luckily for us many people were too spooked to follow such good sense, and we were able to take advantage of their panic, buying good investments from them very cheaply.

It’s important to remember what got us here, and what will continue to work in the future. We will continue to make recommendations based on a combination of common sense and customized, personal advice, designed for our clients and their situations. I recommend that you do the same.

Post questions and comments.

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David Christianson is a fee-only financial planner and investment counsel with Wellington West Total Wealth Management Inc. His column, ‘Dollars & Sense’ appears Fridays in the Winnipeg Free Press. Visit www.davidchristianson.com for up-to-date financial news, commentary, and interactive community.