Market Recovery Program
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Chapter 4
THE INDIVIDUAL HOLDINGS DILEMMA
Are there any other factors to consider?
Yes: the individual holdings dilemma.
What’s that?
Even if we’re convinced that the market will recover quickly -- and we certainly hope and pray it does -- that doesn’t mean our individual holdings will perform as the market as a whole will. The Dow and S&P 500 are market indices made up of many stocks taken as a whole; an index is an average. Yes, an index will, eventually, return to pre-crash levels. But there’s no guarantee that individual holdings -- individual stock positions or individual mutual funds -- will perform exactly as the index does. They may do better; they may do worse.
To be perfectly honest, It matters not a hoot to me and my portfolio if the market recovers but my individual holdings don’t. Sorry, I’m looking out for #1...I’m happy that society as a whole benefits from a market recovery but I’m more concerned with my portfolio’s recovery.
I think your attitude is the correct one…and you’re being realistic: individual holdings do not perform in step with market indices…and this reality must be factored in to any decision you make regarding what course of action to take.
Refer to Appendix D -- Standard & Poor’s Indices Versus Active Funds Scorecard at the back of this book. The reader will see a comparison between the performance of mutual funds and S&P indices over various time periods. It is quite clear that a significant majority of mutual funds are outperformed by market indices.
So, how long will it take to get my money back to where it was?
That’s the Million Dollar Question, isn’t it?
Which brings us to The Rule of 72...
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