The stock market extended it’s rally for the fourth quarter in a row.

Here are the details:

Dow Industrials

• Up 429.58 points this quarter, or 4.1%, to close at 10856.63.
• Best 1st quarter performance since 1999.
• March was the best month for the Dow since November 2009.

Nasdaq Composite

• Up 128.81 points this quarter, or 5.7% to close at 2397.96.
• March was the best monthly percentage gain since July 2009.

S&P 500

• Up 54.33 points this quarter, or 4.9% to close at 1169.43.
• 25% off its October 2007 high.
• March was the best monthly percentage gain since July 2009.

Sources

• Bull Muscles Through Tumult [The Wall Street Journal]
• Data Points: U.S. Markets [MarketBeat]

“What do you think the best year for the market has been since 1942?  The answer is 1954.  In 1954, the Dow, counting dividends, was up 50%.  Now if you look at 1954, we were in a recession a good bit of that time.  The recession started in July of 1953.  Unemployment peaked in September of 1954.  So until November of 1954 you hadn’t seen an uptick in the employment figure.  And the employment figure more than doubled during that period.  It was the best year there was for the market.  So it’s a terrible mistake to look at what’s going on in the economy today and then decide whether to buy or sell stocks based on it.”  Warren Buffett, CNBC Town Hall Event at Columbia University, November 12, 2009

Dr. Gawande tells the story of rock band Van Halen who buried a clause in its lengthy touring contract that a bowl of M&Ms was to be provided backstage with the brown M&Ms removed.  When the group arrived with its nine truckloads of heavy equipment, the appearance of the bowl of M&Ms – the brown ones removed – was a sign that the rest of the venue’s preparations were likely correct.  If not, they knew that all of the other preparations were suspect – including whether the stage would support the weight of their equipment.

What does all this mean to you?  When trusting a manager to invest your money, be sure this person is a compentent, well-degreed professional that realizes that shortcuts to research only puts you further behind.  Digging to the financials of a company or reviewing key ratios in researching mutual funds is key to investment returns.  Ask the right questions when hiring a money manager.  One important question would be “do you use checklists”.  Well documented step-by-step procedures can eliminate errors in your account, and can ultimately lead to better portfolio management and a much better relationship with your porfolio manager.

Photo by Cameron Cassan

It’s been well-reported in the media that the 2000′s were a “lost decade”, meaning that the US stock market is trading where it was 10 years ago.  Tony warned you back in April that the media would have a heyday with this news.

The media calls this a “lost decade” because an investor who bought and held an index fund at the beginning of the decade has not made money.

Why does the media assume we invest like this?  Most people don’t.  In fact, I have yet to meet anyone who invested a lump sum of money in an S&P 500 index fund on 12/31/99, let it sit, never added to it, and never withdrew from it.

The “New Normal” was the most overused phrase of 2009. The “Lost Decade” is quickly becoming the most overused phrase of 2010!

I don’t know about you, but I know for sure that the 2000s were NOT a lost decade for me.

There is no excuse for an astute investor to have a lost decade. Consider these four points:

#1 – Good stockpickers should have made money over the last 10 years. Although the S&P 500 index was down for the decade, many individual stocks were up!

There are 80 stocks currently in the Russell 3,000 that were up 1,000% or more last decade.

The 50 best performers in the Russell 3,000 were all up more than 1,200% for the decade.

The top performing stock for the decade was Medifast (MED) with a gain of 16,209%.

#2 – Most people don’t invest 100% of a lump sum of money into an S&P 500 index fund and let it sit for a decade. Ron Lieber wrote an excellent article for The New York Times making this point:

If you invested $100,000 on Jan. 1, 2000, in the Vanguard index fund that tracks the Standard & Poor’s 500, you would have ended up with $89,072 by mid-December of 2009. Adjust that for inflation by putting it in January 2000 dollars and you’re left with $69,114.

But that is not how most real people invest. They don’t pour everything they have into just one type of asset and then add nothing to it for 10 years. Instead, they buy stocks of all sorts, and bonds and perhaps other things, too. And many millions of them dutifully add more money regularly, usually into a retirement account that they won’t touch for longer than a decade.

#3 – Savers end up dollar cost averaging their investments. Rather than investing a lump sum at the beginning of the last decade, many investors would have been regularly adding to their stock portfolio on a monthly, quarterly, or annual basis.  For these investors, buying stocks at different prices throughout the decade could have dramatically improved their returns.

#4 – Trend followers would have identified sustainable trends in the market and adapted to them. Brian Shannon wrote a book on how to do this.  I highly recommend it if you invest your own money.

So what can we learn from the last decade?  I think the biggest lesson from the last decade is that active management matters.  Good stockpicking matters.  Finding great mutual fund managers matters.  Identifying changes in the trend of the market and adjusting your portfolio to benefit from them…matters.

The only thing the “Lost Decade” promoters prove is that an active investment strategy is a much better approach than passively buying index funds and holding them forever.

So, what do you say? Were the 2000′s a lost decade for you? Or, did you come out a winner?

Sources:

• The Best of the 2000s [Bespoke]
• For Savers, It Was Hardly a Lost Decade [The New York Times]

Photo by BlatantNews.com

Approximately 7,000 publicly owned companies report dividend information to Standard & Poor’s Dividend Record. In 2009, dividend cuts cost investors over $58 billion in income, according to Howard Silverblatt, Senior Index Analyst at S&P. Silverblatt believes the dividend recovery will be slow and that it will take until 2012-2013 to return to the levels reached in 2007-2008.

Source: First Trust Advisors L.P.

Two years ago, J.D. Power predicted that China would surpass the U.S. as the world’s largest auto market in 2025.  Well, they were off by 16 years.  China has officially overtaken the U.S. as the world’s biggest market for autos.  The first time any other country has bought more vehicles than the nation the invented the automobile.  Now that the Chinese buy more vehicles than Americans, it could produce ripple effects for the environment, gas prices, and even the kind of vehicles car automakers design.

More than 12.7 million cars will be sold in China this year, up 44% from the previous year.  This surpasses the 10.3 million forecasted sales for the U.S.

Investment Implications:  U.S. Population = 300 million.  China Population = 1.3 billion.  Vehicles are just one aspect of the expected increase in consumption by the world’s most populated country: China.  We have and will continue to deploy capital to take advantage of the shifting consumer trends taking place in China.

Source: AP Business Writers, Google

DJIA 10,000, let’s reminisce: “

With the DJIA approaching 10,000 again, let’s reminisce about 1999, the year it first passed that magic level on March 29th. Millennium by the Backstreet Boys was the best selling album, American Beauty won the Academy Award, the Euro was established, SpongeBob SquarePants aired for the first time, Hugo Chavez was elected President of Venezuela, Karl Malone, Pudge, Chipper Jones, Jagr and Kurt Warner won MVP awards and the average price of a gallon of gasoline at the pump was about $1.20. US nominal GDP ended at $9.6b vs $14.1 as of Q2 ‘09. Also, on March 29th 1999, the DXY was at 100.36 (now 75.60), the CRB was at 192.40 (now 269.15), gold was at $280 (now $1,060), oil was $16.44 (now $74.80), corn was $2.32 (now $3.85), copper was $.62 (now $2.83), the 10 yr yield was 5.19% (now 3.38%), and the fed funds rate was at 4.75% (now 0-.25%). Oh, how time flies.

“

Here is a crazy fact! On both 9/11/01 and 9/11/09, the Dow Industrial Average was at 9605.

Here is a re-post from Barry Ritholtz’s blog:

This has been circulating Wall Street trading desks: On both 9/11/01 and 9/11/09, the Dow industrials were at 9605 (it was the close of the 9/10 in 2001, since markets never opened on 9/11 2001).

Here’s the chart:

>

Thanks, Pete!

Last week Tony wrote about “The ’99 Rolloff“.  He discussed 10-year returns, and the “lost decade” we just experienced.  Although the last 10 years in the stock market have been dissappointing, the next 10 years should be better for investors.

Stocks posted nice gains during March after 6 down months in a row. It’s about time isn’t it? We have not had a 5%+ up month for the S&P 500 since December 2003…a streak of 62 months. We were well overdue for a positive month.

• For March, the Nasdaq turned in a 10.9% gain – its best month since November 2002, when the last bear market bottomed.
• The S&P 500 rose 8.5% in March, the best monthly gain since October 2002.
• The Dow Jones Industrial Average was up 7.7% in March, it’s strongest monthly gain since October 2002.

Normally, a month like this would be big news. But, I’m seeing very little written about it today. This is probably because:

• stocks still ended the first quarter with a loss.
• this is the sixth quarter in a row that stocks have ended with a loss.
• the market hit a new 12-year low on March 9th.
• investors still lack confidence and fear dominates the TV.

BUT, we just had the best month in more than six years! Perhaps this is the V-shaped recovery that Brian Wesbury forecasted. Check out this YTD chart for the Dow:

Here are even more stock market stats for the quarter and month for the data freaks (like me).

Now that we finally broke the six month streak of poor monthly performance for the market, let’s hope that the 2nd quarter will break the six quarter streak of poor quarterly performance:-)

~Adam

Sources:

• Bloomberg
• Investment Postcards From Cape Town
• Investor’s Business Daily
• The Wall Street Journal