2009- A Year to Remember

As 2009 ends and 2010 begins let's take a brief look back to see what we need to remember and what we should have learned from this past year. The herd mentality that drove many investors out of the stock market early in 2009 helped us define the difference between investing and speculating. Looking at money fund balances, it is clear many investors have missed the 65% upswing since early March as they wait for "the right time" to invest. Depending on these last 2 trading days the S&P 500 should finish with its best year since 1995.

We also learned that all asset classes including real estate can decline in value. For many folks this reality has been almost unthinkable. The good news is that much of the data suggest a bottoming process may be underway in some regions and at some price points. The bad news is mortgage rates are likely heading up and higher priced homes are still soft . We are roughly at 2003 price levels in most areas of the country.

Looking ahead to 2010 we of course make no predictions but a couple observations might be useful. Looking at Price to Earnings ratios it seems that the now 9 month long rally in equities has somewhat outstripped the underlying earnings. That is, growth in 2010 will likely come from higher earnings not expanding P/E's. One final tidbit. I heard yesterday that a recent study of stock "analysts" predictions provided some helpful information. The study looked back a number of years and covered over 6 million "Buy and Sell" recommendations from these brokerage firm analysts. The conclusion was , in the aggregate, the recommendations followed the market trends in both the up and down directions. In other words...they had no particular predictive value. No surprise here! Happy New Year!