Longing for Yesterday

By nature, humans are fond of remembering days gone by.  Some years, though, our fixation on things remembered is more acute than others. 

To wit, we find it more important to attend a class reunion 20 years after graduating than we do to attend one 19 years after graduating. 

We make much ado about celebrating a 50th wedding anniversary but not a 49th wedding anniversary, as if that is any less impressive. 

December 7, 2011 -- the 70th anniversary of Pearl Harbor-- will undoubtedly garner more media attention than December 7, 2010 -- the 69th anniversary -- despite the fact that day is equally infamous and worthy of extra attention in any year.

A Milestone or A Millstone?

What is it about the "multiple of 10 memory" that stirs our sense of awareness? 

We suppose it has something to do with the fact that 10 years is the length of a decade and a lot can change in ten years' time, as any 20-, 30-, 40-, 50-, 60-, 70-, 80-, 90- or 100-year old will attest.

So here we are on the cusp of another 10-year milestone that is sure to have snuck up on a lot of market participants given all that has happened in the last 10 years and which is sure to produce mixed emotions that span from jubilant to despondent.

The milestone (or maybe we should call it a millstone) is the 10-year anniversary of the Nasdaq Composite hitting its all-time high of 5132.52 on March 10, 2000.  Today the Nasdaq Composite sits at 2326.35.

We will let that last thought sink in for a moment...

The Nasdaq today is a far cry (figuratively and literally) from its all-time high -- 55% to be exact.  

Talk Is Cheap

It is the downturn nearly every investor who understandably clung to their buy-and-hold ways wishes they could forget.

The talking heads on the business channels are certainly doing their part to fulfill that wish. 

Placing the caveat on every rally that the Nasdaq is still 55% off its high is not exactly great for the ratings.  What helps the ratings are reset button reminders that the Nasdaq Composite is up 110% from its low in October 2002 and that it soared 44% in 2009. 

That sounds so much more comforting and it makes investing seem a whole lot easier for viewers, does it not? 

It is a classic case of selective amnesia.  If you do not talk about it or think about it, then it did not happen. 

If only that were true in the real world of investing.

Timing Is Everything

The Nasdaq crash did happen, and while things look better today than they did 7 1/2 years ago, many investors are still picking up the pieces from 10 years ago.  The subsequent crash of the real estate market has made the cleanup effort all the more difficult.

There have been extensive studies showing that it does not pay to try and time the market.  The lesson of the last 10 years, though, is that timing has been everything -- and that does not just apply to the Nasdaq Composite.

A buy-and-hold investor who bought an S&P 500 index fund in March 2000 has a much different perspective today than a buy-and-hold investor who bought an S&P index fund in March 2009, assuming they are still in the market.

Such assumptions are reasonable given that two bear markets in a 10-year period, during which time there was an epic collapse in the U.S. real estate market, have most likely killed the investment spirits of plenty of retail investors. 

A Beatles Tribute

If we had to choose a theme song for a retrospective piece on the 10-year anniversary of the Nasdaq Composite hitting its all-time high, we would choose the most recorded song in history -- "Yesterday" by Paul McCartney and John Lennon which, ironically, appeared on the "Help" album.

(Cue the music)

Yesterday, all of our current troubles seemed so far away. 

Now it looks as though they are here to stay. 

The Nasdaq is not half the level it used to be and it has a shadow hanging over it.

Yesterday came suddenly.

Although we know why the Nasdaq had to go the way it did, that does not mean we do not long for yesterday when investing was such an easy game to play. 

Now, a number of investors are simply looking for a place to hide away.

We believe in yesterday.

Unfortunately, it is going to take many, many more tomorrows to get back there.

--Patrick J. O'Hare, Briefing.com

(Note: Several of my tomorrows are going to be spent on vacation.  The next update to The Big Picture column will occur Monday, March 22)