What to Do If You Missed the Rally

About halfway down the page, I'm going to make a confession. It's not that I missed the "doomsday" rally. At least not entirely. But it pains me to write it nonetheless.

Or maybe I should look on the bright side. After all, whether we admit it or not, a lot of hardworking investors got whipsawed by the market this year -- having cashed out at the bottom in March then missing out on the bounce.

Who could blame us?
Jim Cramer beseeched us to sell, sell, sell. Shark-jumpers like Ben Stein, who had shrugged off the Fannie Mae (NYSE: FNM  ) subprime debacle and hustled us into financials like Goldman Sachs (NYSE: GS  ) and Bank of America (NYSE: BAC  ) at the top, suddenly decided that the stock market was rigged against individual investors.

By March, grown men wrung their hands like distressed schoolgirls on CNBC, lamenting the end of capitalism and hailing the dawn of the next depression. Even once-rational financial advisors -- folks who are paid to know better -- pronounced the death of buy and hold and told us to get "proactive" with our lifesavings.

In short, we got some crappy advice. How else do you lose nearly 60% in Google (Nasdaq: GOOG  ) , one of the great success stories of the past decade? How else does a long-term investor saving for a distant retirement lose more than 60% in Amazon (Nasdaq: AMZN  ) , a stock that subsequently hit all-time highs?

OK, here's my confession
I didn't sell Google at the bottom. I didn't sell Amazon, either. In fact, I didn't sell anything. But I didn't back up the truck, either. Not in March. Not in April. Not in May. I did buy in November 2008, nibbled a little over the summer, and have been buying on the rare down day lately, but not nearly enough.

Again, can you blame me? Some of what those nervous Nellies said made sense. I'd owned Bank of America for years, and was overweight financials in my index funds. But gun-to-my-head, I didn't know what was going on behind closed doors. Moreover, if the entire global financial system collapsed, would it even matter?  

Frankly, I was spooked like you were. As a result, the kind of new money I'd eagerly funneled into the market when prices were higher started piling up in cash. Worse, when what should have been a perfectly timed windfall fell into my lap, I didn't get that into the market, either. Before I knew it, I had more cash in my Schwab account than ever before.

Now the worst part
Look, I'm not complaining about having too much money. And I'm not talking about a million dollars here. The point is, I should have known better. I knew that the world wasn't coming to an end in March. I'd been through this same thing before. I'd bought in '91 and in '03. I never lost faith in stocks for the long term.

And, let's be honest, while my decision to stop investing was passive at first, as the market climbed higher, I consciously screwed up. And the more the rebound gained steam, the more I dragged my feet. You may be in the same boat.

Now here we are: sitting on cash, singing the blues, waiting for a pullback. But what's done is done. What matters is what we do now. So let's talk through our options. We could simply sit tight. After all, exactly one-half of the "experts" you see on TV are convinced we're due for a massive sell-off.

We could get better prices in a few weeks or months. On the other hand, isn't this the exact same kind of thinking that got us into this mess to begin with? And even if we do get a pullback, 20 years from now, will we even remember if we caught the precise bottom? I doubt it. I think we have to get in.

But the easy money has been made
Let's face it, March 2009 is history. All you needed to make money back then was guts. Pull up a chart of walking-wounded Citigroup (NYSE: C  ) or even AIG (NYSE: AIG  ) right now if you don't believe me. But after a 50% bounce that lifted all boats, that ship has sailed.

That's why I don't advise jumping in and buying "the market" right now. But I don't think we should be in cash, either. Apparently the top brass at The Motley Fool agrees. For the first time in two years, the portfolio managers at Motley Fool Million Dollar Portfolio are investing new cash -- with an interesting twist.

Like the original $1 million investment, this new money will be expertly allocated to only the best opportunities from across The Motley Fool's investment newsletters. However, this new $250,000 infusion will be managed in a separate real-money portfolio -- making it as easy as possible for new members to follow along step-by-step and "catch up."

Here's why this matters to you ...
In addition to adding new money, Million Dollar Portfolio is accepting new members for the first time in 15 months -- but only for a short time, over the next few weeks, and by invitation only. I missed out when the service opened two years ago, but this time I will be personally investing myself.

If you think you might be interested in joining me, I encourage you to enter your email address in the box below and click the button. This way you'll be the first to hear when the service opens and the investing begins. Whatever you decide, I hope you'll learn from my mistake.

Studies confirm that sitting out just a handful of the market's best days can be devastating to your long-term wealth. So if, like me, you have money set aside for stocks sitting in cash, don't get cute. Don't let the kooks on TV spook you -- especially when prices are reasonable. It's a recipe for heartache.

And, remember, we're in this together. If you're looking to get back in the game and want a little extra step-by-step guidance, why not learn more about Motley Fool Million Dollar Portfolio? Simply enter your email address below.

Paul Elliott  owns shares of Bank of America. Google is a Motley Fool Rule Breakers pick. Amazon is a Motley Fool Stock Advisor pick. The Fool has a disclosure policy.

Read/Post Comments (8) | Recommend This Article (25)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 09, 2009, at 6:34 PM, plange01 wrote:

    which rally? we have one once a week at least!

  • Report this Comment On November 09, 2009, at 7:04 PM, mikecart1 wrote:

    plange01 is right.

    If you can't make money now then you can't make money in any market. Everyday there is a stock that increases or decreases by at least 20%. It happens everyday. If you can find it, that is a personal problem. Not a "March 2009 is History" problem or that you don't have time to find it.

  • Report this Comment On November 09, 2009, at 7:38 PM, SteveTheInvestor wrote:

    I suppose if one is a trader (I'm not), one could have made a lot of money by getting back into the market in March. On the other hand, I got mostly out in early 2008. I'm still way ahead of where I would have been if I had just stayed in. Many of the funds in my 401K dropped 50% or more. A 50% bounce is nice, but since it occurred after a 50% drop, it still has a ways to go to reach break even.

    I'm glad to be heavy in cash right now. The financial markets still aren't working that well. We may have dodged a full blown depression but there ain't a whole lot that's encouraging outside of that. It's always fear/greed/fear/greed. Right now I think we're in greed mode.

  • Report this Comment On November 10, 2009, at 9:20 AM, Baptistfundi wrote:

    Yeah, the service costs $500. Motley Fool is a rip off.

  • Report this Comment On November 10, 2009, at 10:27 AM, PeyDaFool wrote:

    "Studies confirm that sitting out just a handful of the market's best days can be devastating to your long-term wealth."

    Mr. Elliott, I would be very interested to read some of these studies. Would you happen to have a reference or two?

  • Report this Comment On November 10, 2009, at 11:12 AM, XMFRael wrote:

    PeyDaFool... in the spirit of being fair and balanced, here's an article that discusses one such study... showing the benfits and costs of market timing. The difference, obviously, is whether you believe you actually can time the market (which, I personally don't believe I can). So I focus on the "cost" of jumping in and out.

    The other is a relatively famous Fidelity study, which shows the results of missing the market's 10 best days -- I'll try to find a link, but you'll see it referenced often.

    Thanks -- pe

  • Report this Comment On November 10, 2009, at 2:25 PM, PeyDaFool wrote:

    I didn't mean to belittle your point, because I think you presented a very interesting article. I also believe market timing is a futile effort, at least in the long run.

    I will look for the Fidelity study, even though I think it may very well be a waste of time to show how much money one could have made by investing on the 10 best days in recent market history. This is unrealistic.

    Citing and referencing a study you're referring to is never a bad idea in order to give credibility to your argument.

  • Report this Comment On November 10, 2009, at 4:47 PM, cdavis993 wrote:

    I subscribed to FOOLS to get some QUICK IDEAS as to where to invest. All the time I see a "catchy" article title which appears to be interesting, I click on it then read, read, read....and never find anything useful or suggestive for my investing. It seems like I am just reading "stuff".

    The BUY now or recommended buy (whatever it is called) has been a disappointment as well. I am looking for long term INVESTING, not trading. I took several hours to compare their record to the S&P, and yes they did better, but only if you bought their recommended stock EACH & EVERY month, as some of the investments didn't pan out. I don't have the money to invest each and every month, so this doesn't work for me.

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