The Lost Generation
by Richard
This was the descriptive phrase that Gertrude Stein, and later Ernest Hemingway and F. Scott Fitzgerald used to describe the war weary and disillusioned post World War I Generation.
It could also describe the generation that came of age during the Great Depression…
…with the lessons of the Stock Market Crash and widespread unemployment that caused them to fixate on thrift, savings and job security.
And to avoid the stock market like the plague.
The market highs of 1929 were not equaled until the early 1950s.
Setting the stage for the explosive secular bull market of the fifties and sixties.
I saw an echo of this phenomenon during the 1973-75 bear market. Once again, the rallying cry was “never again”.
Once burned, these sorry investors sat on their hands…and hoarded their cash.
And missed the incredible bull market of 1982-2000.
The latest lost generation is doubly entitled to wallow in regret and remorse, having experienced two savage bear markets in the first decade of the new millennium.
And a global meltdown of the banking and real estate markets for added good measure.
Nobody can blame them for being scared witless…but if history is a reliable marker, they could and most likely will miss out on the recovery.
Economists and statisticians refer to this self correcting phenomenon as “reversion to the mean”.
Like human greed, fear and frailty….a fixed and eternal fixture of the investment horizon.
I can only offer this strategy as a remedy.
- Stay the course. Don’t try to time your entry or exit from the markets.
- Stay diversified among the major asset classes of securities, real estate, cash and direct business ownership.
- Diversify further via asset location…utilizing the full alphabet of investment options….IRAs, 401ks…Roths.
- Continue to dollar cost average your way into investments by steady and consistent payroll deductions and offsets.
- Do not obsess about the markets.
It won’t do a lick of good, and will cause self doubt to poison your innate optimism.
Focus instead on losing that extra ten pounds.
Health care reform is coming…and you can’t afford to be out of shape once health care options are rationed.
Finally. Something else to worry about.
May 21st, 2009 at 8:20 pm
It is incredibly frustrating to me when I read about investors jumping in and out of bed with stocks. Do they not listen to their advisors’ warning that the stock market can, and does, lose value? Do they not pay attention to the trends, every 10-20 years there’s a down, but within a few years there’s a major up. Trying to time the stock market is pointless, you just never know. I don’t understand what’s so difficult about the stock market being a LONG-TERM investment. It is meant to cover the long-haul, not only while the going is good.
Perhaps I’m showing my youthful age here, but I just think we’d be better off if people stuck to their original goals and plans for getting into the stock market in the first place. Lost generation, indeed. More like the generations that don’t listen. Meh!
May 22nd, 2009 at 11:59 pm
[…] Richard @ Blue Jeans Millionaire has an interesting piece on ‘The Lost Generation.’ In his post, he takes a look at those investors who’ve pulled out when times get tough only […]
May 23rd, 2009 at 12:55 pm
Although I began investing only a short while ago, I am convinced that the only way to sensibly invest in the stock market for long term is to invest in a portfolio of balanced index funds. Every other option is expensive and returns are mostly less than index funds
May 26th, 2009 at 6:53 pm
Kristy, you are right on. Your age might be youthful, but you show a keen eye for sensibility that will serve you well as you become… less youthful.
BM, your strategy is one of many that can work well for the right investor. One note to add is that returns are not the only gauge of choosing a fund. Certain investors, especially older ones (but also younger ones who are risk-averse) can be better served with funds that have lower returns than indices, yet are much less volatile. If one knows one’s self well, and know they may get panicky and sell at the lows, and also don’t care to be involved much with their asset management, then they’d be wise to invest in a mutual fund that is a mix of bonds and stocks (albeit their higher fees): it will have lower returns than the index, but it will not loose too much value during stock market downturns. Ideally, people are always rational and can show restraint and good sense when investing; in practice, people are fallible humans and the best next option is to choose investment vehicles appropriate for their own (occasional) lack of rationality.
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