We have been writing a great deal of late on the challenges of investing in a post-crisis world.  For many investors whatever plan they had prior to the crisis has long since gone out the door.  In retrospect the benefits of a market timing or tactical strategy look pretty good.

However with the attendant media attention on the stock market with the Dow 10,000 we are seeing evidence that a number of small investors missed the opportunity that was the rally of late. As Brett Arends writing at WSJ notes that shouldn’t be altogether surprising:

Millions of ordinary investors, burned by two stock-market crashes in the past decade, are leery of Wall Street. Mutual-fund investors continue to sell their stock funds and buy bond funds in the quest for more stability. And yet the market keeps rising. What should investors do?

At the moment many of them seem content to continue putting their money into “safe” bond funds.  The most recent data show bond funds continue to receive inflows while equity funds even after this rally continue to demonstrate outflows.  As Daisy Maxey at WSJ writes:

Even some bond-fund managers are surprised by investors’ continuing appetite for bonds and are warning that this year’s outsize returns won’t likely continue.

Only now does it seem that some investors are willing to re-enter the stock market albeit in a modest way.  Tomoeh Murakami Tse at the Washington Post writes:

And in interviews over the past two weeks, fund managers and financial advisers said most small investors have only recently begun to talk about getting more aggressive with their beaten-down portfolios.

Maybe we should just blame Jim Cramer for all this.  Henry Blodget at The Money Game re-visits Cramer’s “call of lifetime” in which he told investors back in October 2008 to sell prior to an additional large drop in the market.

Blodget does not take issue with that call, which in retrospect turned out to be correct.  The question is he asks is how many of those investors who took that advice got back into the stock market at any point along the way?  Absent a clear call to get back into the market, the anecdotal evidence indicates few actually did.  As Blodget writes:

Cramer was certainly right about the near-term direction of the market, and, for a while, he saved those who acted on his advice some money.  A year later, however, with the market having recovered all of its losses, Cramer’s call just looks like what most of Cramer’s calls look like: Noise.  And, in our opinion, it stands as yet another clear example of why most investors should avoid market-timing..”

A cynic might note that any one who takes their market calls from some on television gets what they deserve, but that is not altogether fair.  For a long time, buy and hold seemed like the way to go.  However the past decade punctuated by the events of last year demonstrate the psychological toll holding on can have.  The past year was the death knell for many buy-and-holders.  The problem is now that they now have no viable investment plan going forward.

In short, they got out of the game.  As we wrote a couple of days ago when discussing how to invest in a post-crisis world:

All an investor can hope to do is try maintain a flexible approach and stay in the game.  Only those investors who stay in the game will be able to capture some gains along the way.

It is easy to get out of the market.  It feels good especially in hindsight when you see the market continue to tumble.  However it is difficult to get back in especially when all the headline news reeks of a continued economic downturn.  In short, market timing can only be successful if one has a steadfast plan for both exits and entries. As we have seen panic exits from the market can often lead to the new panic of having missed a 60% rally off the lows.

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