The Aughts Were for Naught


January 11, 2010


This is the time of year when everyone has an opinion of what the new year will bring. If you don’t have one, you have to make one up. We are not quite as susceptible to this because our clients “know” that we are market agnostic, and try to position portfolios that will be somewhat resistant to severe market downturns. Let’s first do a quick review of the last decade (2000-2009):


·        The S&P 500 gained +26.5% (total return result including the impact of reinvested dividends) in calendar year 2009, the 2ndbest performance of the decade (behind the +28.7% gain in 2003) and the 11thbest result in the last 50 years for the index (i.e., the years 1960-2009). The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the US stock market (source: BTN Research).


·        Since dropping to a bear market low on 3/09/09 (i.e., about 10 months ago), the S&P 500 has gained a remarkable +67.8% (total return) through the close of trading on 12/31/09 (source: BTN Research).


·        The S&P 500 was down 9.1% in aggregatefor the decade on a total return basis (i.e., the 10 years from 1/01/00 to 12/31/09). That performance is the worst decade ever for the stock index, falling below the negative 0.3% performance achieved during the 1930s. The best decade everfor the S&P 500 was the 1950s, a 10-year period when the stock index gained +487.1% (source:  BTN Research).


·        There has been zero net job creation since December 1999. No previous decade going back to the 1940s had job growth of less than 20 percent. Economic output rose at its slowest rate of any decade since the 1930s as well (source:  Washington Post).


·        “This was the first business cycle where a working-age household ended up worse at the end of it than the beginning, and this was in spite of substantial growth in productivity, which should have been able to improve everyone’s well-being,” said Lawrence Mishel, president of the Economic Policy Institute, a liberal think tank.



With all the good news in domestic and international stocks for 2009, why aren't we feeling any better? For many of us, 2009 felt like we were getting some of our money back, but we didn't get all of it. By the perverse math of down and up markets, an investor who took the full brunt of the 37.31% decline in the Russell 3000 index in 2008, would have required a 59.6% return in the next year to break even.


In addition, there is unhappy evidence that many investors didn't participate in the upturn--and, therefore, didn't make ANY of their money back. Some investors retreated from stocks after the downturn and watched the upturn from the sidelines. 


We are emerging from a historically bad decade for stock investors. If you managed to increase your wealth over the last ten years, then you deserve congratulations. 


Only the Great Depression-era 1930s and our recent decade of the 2000s delivered negative stock performance. Meanwhile, on December 31, the S&P 500 index closed out its first decade ever with a total return loss--which means a loss even with dividends reinvested. 


So perhaps this is a time to count our blessings. The recession that began two years ago is officially ended, and the TARP program officially ended its existence in the final months of last year. 


Riddle: How many 9s are in the range of numbers from 1 to 100? (Remember, the number 99 has two 9s in it.)  See answer below.


What's ahead? With so many surprises over the past two years, professional soothsayers and prognosticators are being unusually cautious this time around. Normally, the year after a recession brings a hard and fast recovery, with GDP growth in the 6-8% range over the following 12 months. But a recent survey of economists by the Bloomberg organization found a consensus expectation of just 2.3% growth in U.S. economic activity, largely because the deleveraging process--paying back debts on the federal, state, local, corporate and personal balance sheets--may continue far into the future. Fortunately, if this continues, it will lead to a thriftier, financially healthier economy--eventually.


Of course, those predictions are merely guesses, as are anything you hear about investment returns during the next year. There are positive and negative surprises in our future, changes that will help or hurt. But generally, over time, the positive influences always tend to outweigh the negative ones, which is why we don't still live in caves or drive mules to work, and why the Dow is not still hovering around 43, as it did in the early 1930s.  We don't know what the future brings, but it's a good guess that the trauma of 2008, and the first decade of the millennium, will be remembered as unusual detours in the longer-term upward march of the markets.


So here’s to 2010 and a new decade. May it offer many opportunities and bountiful returns!


Best regards,


Edward J. Kohlhepp, CFP®, ChFC, CLU


Edward J. Kohlhepp, Jr., CFP®, MBA



“An optimist stays up until midnight to see the new year in. A pessimist stays up to make sure the old year leaves.” ~ Bill Vaughn


“Cheers to a new year and another chance for us to get it right.” ~ Oprah Winfrey


Answer to Riddle: 20, as follows: 9, 19, 29, 39, 49, 59, 69, 79, 89, 90, 91, 92, 93, 94, 95, 96, 97, 98 and 99 (note two 9s in that last numeral.) 



Compiled from various sources, including Bob Veres
These are the views of the author, Bob Veres, and not necessarily those of Kohlhepp Investment Advisors, Ltd. or Cambridge Investment Research, Inc.  Past performance is not a guarantee of future returns.
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Kohlhepp Investment Advisors, Ltd.
3655 Route 202, Suite 100
Doylestown, PA 18902
Phone: 215-340-5777
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