Year-end 2010

To start the new year, let’s take a look back at 2010 from an investment perspective. For the second year in a row, stock markets rose more than the historical averages. Bonds were also positive for the year. Discipline was again important… 8 months into the year the S&P 500 Index was down 5.8%, but later surged to a 15.1% gain for the year, recouping all of its losses since the collapse of Lehman Brothers on September 15, 2008. News in 2010 often scared investors, causing some to invest emotionally and/or remain on the sidelines, creating large opportunity costs. Those that stayed focused on the long run were were not phased by the following headlines, and were rewarded with strong returns:
• A prominent researcher who predicted the Great Recession expected the “biggest asset bust ever.”
• The January cover story in The Economist warned of asset price bubbles.
• The “January Indicator” signaled weak stock market performance for the remainder of 2010.
• The Gulf of Mexico oil rig explosion in April created a hugely expensive disaster.
• The “flash crash” on May 6th saw the Dow index drop 1100 points in only a few frantic minutes.
• Hundreds of bank failures revealed continued weakness in the financial system.
• A divided Congress passed a complex and politically charged healthcare reform bill.
• Housing was weak. New home sales fell to the lowest level since 1963, when tracking started.
• An obscure technical indicator called the “Hindenburg Omen” generated a “sell” signal in August.
• North Korea attacked South Korea’s Yeonpyeong Island in November.
• A financial crisis gripped governments in Greece, Spain, Portugal and Ireland.
Our continued recommendation… focus on the goal, not the noise.