The Real Threat Facing Investors Today

Nobody's talking about the real threat facing investors like us. That's why, dollar for dollar, it's 10 times deadlier than the worst "market crash" any doomsayer can predict.

You probably know what it is
Heck, I've even warned you about it before. I discovered it the hard way 20 years ago. I'd spent the summer running numbers and making client calls for a financial planner in an upscale D.C. suburb. My boss had a Ph.D. and a lobby full of modern art.

But it wasn't until Oct. 19 that I realized he wasn't as smart as he (and I) thought he was. Of course, the truth didn't reveal itself for years. What happened? My boss got his big-money clients 100% out of the market and into cash in August.

Nobody who had money with him lost a dime in the '87 crash! The guy's a legend, right? Not so fast. You'll need the full story before you decide. For now, just know that my disagreement with him that day caused me to walk out on the business of "investment advice" for good.

My exile lasted 15 years
That's when a strange fellow and pretty decent investor charmed me back into the game. Of course, when I joined him at Motley Fool Stock Advisor in early 2002, I had no idea that over the next five years Tom Gardner's average pick would be up 47%.

Had you told me that Tom's brother David's average buy would be up 67%, I'd have laughed out loud. By March 2002, I'd been around. Though I'd ditched the "advice" business, I'd spent five years selling research to Wall Street's top money managers.

What's more, that was March 2002 -- one of the ugliest markets in history. Those were tough times for Pollyanna bulls like us, I assure you, and it was difficult to imagine anyone beating the market by that margin.

Sound familiar? You bet it does. But just for perspective, take a look at some of the carnage we were faced with as stock investors in mid-2002.                       

Company

Bull-Market Peak

Bear-Market Trough

Decline

Cisco Systems (NASDAQ:CSCO)

$82.00

$8.12

90%

Microsoft (NASDAQ:MSFT)

$59.97

$20.16

66%

Intel (NASDAQ:INTC)

$75.83

$12.95

83%

Dell (NASDAQ:DELL)

$59.69

$16.01

73%

General Electric (NYSE:GE)

$60.50

$21.30

65%

Data from Yahoo! Finance. Prices split- but not dividend-adjusted.

What the heck was I thinking?
Why did I go to work with David and Tom, two stock-pickers, in the depths of a bear market? For the same reason I'm writing this column today. I thought the Fools were on to something -- that maybe they could keep investors like us on track and even make some money.

Unlike other advisors, David and Tom weren't making dire predictions. They didn't even seem interested in timing the market or making short-term calls. How Peter Lynch, I thought. Somehow, they were still upbeat about the prospects for investors, arguing that the time to invest in America's top companies is always right now.

NVIDIA (Nasdaq: NVDA  ) and Activision (Nasdaq: ATVI  ) are two companies that had wide market opportunities even when the market doubted them. And those companies are just two of 18 recommendations that went on to double or more (actually, they're up 245% and 636% since David recommended them). Overall, you could have earned 20.02% per year five years running -- more than doubling your money, on twice the return of the S&P 500.

Now, the real threat facing investors today
Earlier, you heard how my first boss spared his high-net-worth clients the 1987 crash. Here's why I walked out. Sure, he saved them a painful 30% haircut. But do you think he got them back in right away?

Zippy chance! And by staying out of stocks through October and November 1987, investors missed one of the best buying opportunities in market history. Any who continued trying to time the market are no doubt worse off for their efforts.

A study by Fidelity hammers the point much better than I ever could. It found that from 1992 to 2007, getting caught on the sidelines during just the market's 10 best days would have cut your gains nearly in half. Ten days, half the return -- that still boggles my mind.

So please don't try to time this market. Especially with money you'll need to retire on.

I know it's hard to resist
If you're not comfortable buying individual stocks, fair enough. You could do worse than dollar-cost averaging into a broad market index fund.

But I think you can do better. Remember, David and Tom's Stock Advisor has returned 20.02% annualized over five years. That return would double your money in less than four years. Are you earning returns like that? Thousands of investors are.

Here's something easy to consider. Try Stock Advisor free for 30 full days and pay nothing. Get David and Tom's latest recommendations, sample the complete service, check out the scorecard, and see whether what I say about them is true. If it's not, you don't have to join. No pressure. Twenty years down the road, I think I'll feel good about this little chat.

To find out more about trying Stock Advisor free for a month, click here.

Paul Elliott doesn't own any companies mentioned in this article. Dell, NVIDIA, and Activision are Motley Fool Stock Advisor recommendations. Dell, Microsoft, and Intel are Inside Value picks. You can view the entire Stock Advisor scorecard immediately with your free trial. The Motley Fool is investors writing for investors.


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