You've Got To Be Kidding Me

This chart is from an article yesterday in "Business Insider" called "Wall Street's Brightest Minds Reveal the Most Important Charts in the World".  It shows the flow of funds into various asset classes since 2007 and raises two important points.  The first thing it shows is that ETFs are winning the investment dollar mindshare battle.  Money's been leaving mutual funds for ETFs because investors are heeding the advice that ETFs are a more compelling and cheaper way to invest in the markets then the old mutual fund business.  The more important point is that since 2007 not a single new dollar has flowed into US equities.  

"You've got to be kidding me", is what I'm sure you're going to say.  If you don't, I'll say it for you.  I understand the skittishness after the last bear market and I can understand why investors weren't quick to embrace the markets right after that downfall.  But that skittishness has cost investors mightily.  Here's how much in opportunity cost that folks left on the table.  None of these numbers below includes dividends.

If you pulled you're money at the bottom of the last bear market in 2009 you've missed out on a better than 200% return on your money based on yesterday's close.  

Say you'd waited a few years for some clarity.  Maybe you took a look at getting back in on dips in the market back in 2010 or 2011.  Back then the market had already put in gains off the lows of 55% and 70% respectively.  Say you'd decided back then to wait.  Times were scary because stocks were correcting, news at the time was bad and all the pundits urged caution.  Also the market was up so much in the past few years that it surely had to go down.  Right?

You passed on a 100% return by sitting out from 2010 on.

You passed on a   83% return by sitting out from 2011 on.

2011 was the last real time the market gave you an opportunity to buy in, meaning that was the last time prior to this year when stocks gave you a 10% pullback.  Now we've had another of those pullbacks which the market has all but erased with this mornings rally.  I'm on record as saying, and will elaborate a bit more on this next week, that stocks may have some problem breaking out to new highs this year as there's resistance between here and those old levels.  That, however, hardly qualifies as being a bear and so far  I've used this downturn to be a buyer for most accounts depending on portfolio strategy and client mandates.  

While some have been in the doom and gloom camp, we've never felt that way.  We've said all along that we think the bull market that began in 2009 is intact and will be absent evidence of a decline in US economic growth.  So far we've seen evidence that the economy has slowed somewhat, largely a response to events overseas as opposed to problems here at home.   However, slowing growth is not so far declining economic activity.  Until we see evidence of recession, we think markets have the potential to continue the advance that began in 2009.  It won't be all "happy trails".  There's going to be rough patches, but as long as things continue to get better, we'll continue to use our indicators and ride the bull until he tells us it's time to get off.  The evidence says right now that today is not that day.  When those indicators tell us a change is in the air {be it Monday, next month or a few years from now} we'll change with it.

And to those folks that got out in 2009 or have kept money all these years stashed in savings accounts or in treasuries yielding nothing.  To those folks that didn't even take a portion of their assets and put it in a diversified mutual fund or a large index fund like the S&P 500 then all I have to say is; "You've got to be kidding me?"

Back early next week.

*Long ETFs related to the S&P 500 in client and personal accounts although these positions can change at any time.