From an investment perspective 2009 was a year for the history books. After being down 37% in 2008 the S & P 500 dropped another 25% through March 9; for a total fall of 57% from the October 2007 high. And then, beginning at the moment of maximum pessimism, the market recorded its greatest nine month gain in history — returning 65% — to finish up 25.5% for the year.
Due to the cruel nature of investment math (a 50% drop requires a 100% gain to break even) all stock portfolios have a ways to go to fully recover. But balanced portfolios, which didn’t suffer such large losses, have bounced back fairly well. Hopefully we won’t go through anything like that again – at least for a while.
The last couple of years have certainly proven that the improbable is not impossible. And there is a great deal of uncertainty as to whether the economic recovery will be robust or anemic. But one thing is certain; managing our emotions is a key ingredient to investment survival.