Today marks the fourth anniversary of the day that the Dow Jones Industrial Average (DJINDICES:^DJI) hit bottom during the financial crisis and ensuing market meltdown. Since then, investors have seen a whirlwind bull market in which just about every U.S. major-market benchmark has at least doubled.
Four years on, the market has taught attentive investors a number of valuable lessons about investing. To commemorate the occasion, let me share four of the most important lessons that are relevant not just in the current bull market but also for your investing strategy throughout your lifetime.
1. Markets take longer to rise than to fall.
The Dow's rebound from its March 2009 lows has been truly spectacular. Although the biggest part of the Dow's recovery came before the 2009 calendar year ended, the stock market has repeatedly defied calls that the bounce would be short-lived. Subsequent years included less dramatic but still substantial gains, culminating in this past week's set of new record closes for the Dow.
But patience has been a key attribute for investors, because as impressive as the bull market has been, it has taken a lot longer to regain the Dow's record levels than it did for the Dow to lose more than half its value from its 2007 highs. In just 17 months, the Dow lost more than half its value from its previous record, but it took almost three times that long for it to get back to that same level.
Losses are tough to endure, but successful investors have to know how to wait. This bull market proves that at least some of the time, that patience is rewarded.
2. Not all stocks are created equal.
With the stock market having doubled, many investors figure that just about every stock managed to post gains. But there have definitely been winners and losers during the bull-market run, and a few stocks have missed out entirely.
Outright losers among large caps have been few and far between, with just 10 of the stocks in the S&P 500 losing ground after dividends in the past four years. They all have stories behind them. Here are a few:
- First Solar (NASDAQ:FSLR), for instance, has had to endure falling prices for solar panels throughout the past four years, along with huge reductions in subsidies from various governments around the world.
- Best Buy's (NYSE:BBY) travails are well known, as it apparently won the big-box electronics retail battle by defeating Circuit City only to find itself falling victim to competition from beyond its brick-and-mortar space.
- Exelon (NYSE:EXC) is a giant in the nuclear-energy space, which took a big hit when the Japanese Fukushima Daiichi nuclear-power plant disaster happened back in 2011. Subsequently, a big drop in natural gas prices reduced the relative cost advantage of nuclear power, cutting Exelon's margins and leaving it struggling to support its dividend.
You'll find similar stories behind each of the other large-cap stocks that fell. But look at the broader market, and you'll find scores of stocks that haven't managed to keep up -- a much larger proportion among small caps than the 2% of the S&P 500 that lost ground.
At the same time, some winners have posted multibagger returns, coming back from the brink of bankruptcy to post stellar returns for those who took the risk during the depths of the market meltdown. The bull market hasn't treated every stock equally, and picking the best stocks can truly pay off.
3. Fundamentals matter.
Perhaps the most impressive thing about the Dow's rebound is that it has been supported by fundamentals. Earnings have risen dramatically, as corporate profit margins have gone through the roof. Companies have taken advantage of rock-bottom interest rates to refinance debt and build up cash reserves to make sure they never have to go through an episode like 2008's cash crunch ever again. Moreover, companies have treated investors well by increasing their dividends.
As a result, even at record levels, the market doesn't look as overvalued as it did the last time it set new highs. That's good news for investors who are just now looking to get in, but more importantly, it emphasizes how stronger businesses lead to better stock returns.
4. Long-term investing does work.
The essential lesson that the four-year bull market has reinforced is that investing for the long run isn't a lost cause. Over time, markets have risen, and as dire as the financial crisis was, it didn't prove any different in that respect.
For many investors, these lessons were hard-won, especially for those who have watched the market's advance from the sidelines. Regardless, making the best use of these lessons in the future can help you avoid mistakes and make the most of whatever opportunities the next four years may bring.
Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter: @DanCaplinger. The Motley Fool recommends Exelon. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.