Shadow Stock Portfolio Rewards Investors Who Stayed in Stocks
Well, we finally made it! As of the end of February the Model Shadow Stock Portfolio is 7% above its pre-crash (June 2007) high.
It is scary to see a portfolio drop 60% and difficult to stay the course and not sell. Many investors reduced their equity holdings (beyond the reduction supplied by the market) near the March 2009 low, and I know several individuals who closed out of equities completely a bit before the low.
Ideally, we all should have rebalanced and added equities through the bad time. Congratulations to any of you who had the discipline to do this. I didn’t in my personal portfolio and, in fact, while I kept my equity holdings, I did switch a bit into safer, dividend-paying holdings. Consequently, I am not quite back to even.
The lesson for all of us is that if we violated our general strategy because of the market pressure, then we should adjust the riskiness of our overall portfolio downward. We have been averaging a severe downturn about every 10 years, and nobody knows when the next one will be. So keep a long-term view, but get the short-term violence down to where you can stomach it.
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