March 9, 2009 was the absolute bottom of this current stock market advance. Since that date, the U.S. stock markets continue to close near or at all-time price highs.
The rising stock markets have made everything look better. Individual investment accounts and company 401(k) retirement plan accounts have done well.
That is the good news.
The bad news is that most individual Minnesota stock market investors that I talk have not learned much over the last 15 years. They don’t remember that the U.S. stock markets can do down in a big way too.
No one is talking about the dot.com stock market bubble back in March 2000. I don’t hear much about the financial crisis that included the real estate bubble back in 1998.
U.S. stock market prices may have come back to new high price levels. Real estate prices certainly have not.
There have been two 50%-plus stock market declines in the last ten years. Does any individual stock market investor remember?
The U.S. stock market went up around 30% in 2013. That is the only information that most individual stock market investors are thinking about now.
Individual investors were afraid to own stocks a couple of years ago. Now stocks are all that they want to own. Individual investors are afraid to miss out on any of the “free money” that is available in the U.S. stock markets now.
No one is talking about a game plan to protect their current stock market assets from the next great stock market decline.
I often bring the topic up to new investors that I meet for the first time. The reaction is the same. The look on their faces is one of confusion. Why would I want to talk about the possibility that the stock markets would go down?
My experience is that when everyone you talk to thinks that the U.S. stock markets will go much higher, that is when the problems begin.
There comes a time in every stock market cycle when protecting gains in much more important than the opportunity for future gains. The first rule of stock market investing is to protect what you have.
Individual investors are going to learn a painful stock market lesson. It is too bad that they don’t have as good a memory as they should about stock market history.
The financial media has the same problem.
Ric Lager
Lager & Company, Inc.
