Don't get off the train, revisited

Just over a month ago, we published a post entitled "Don't get off the train," on March 2, 2009.

In it, we suggested that market moves are often like a "bullet train" and that jumping on when it decides to make a rapid move is very difficult.

"The train is currently backing up and moving forward, backing up and moving forward," we wrote then at the beginning of March, but added that when it starts its move, "jumping on is a lot harder than people think it is."

The past month has borne that out. The day we published that post, the Dow Jones Industrial Average closed at 6763.29, the S&P500 closed at 700.82, and the Nasdaq Composite closed at 1322.85. As of the end of last week, those numbers stood at 8083.38 for the Dow, 856.56 for the S&P, and 1652.54 for the Nasdaq -- a gain of over 19%, over 22%, and over 24% respectively.

If measured from a week after that "Don't get off the train" posting, the increases through the end of last week were even larger -- a gain of over 23%, over 26%, and over 30% for the Dow, S&P, and Nasdaq indexes, respectively, since March 9th.

Those who got off the train and are now thinking it is a safe time to step back on have thus lost a significant amount of ground in just one month, illustrating the incredible difficulty of timing the market's sharp bursts -- in either direction.

Of course, there are plenty of pundits out there now saying that this is a "sucker's rally" and that the market has yet to reach a true bottom.

For example, colorful commodities advocate Jim Rogers was on Bloomberg today saying that he is not participating in stocks because he thinks commodities are a better place to be. Of the recent rally and the market bottom on March 9th, he said, "Is it the bottom? I don't think so, Bernie. I think we're going to see more bottoms in the next few years."

As we have emphasized over and over, we do not advise investors to try to figure out market bottoms, or to make the unpredictable moves of the market their focus, nor do we make such predictions ourselves.

Those investors who are being scared off by commentators predicting that the market will plumb new lows below those set on March 9th would do well to consider the little-known but very instructive case of famous Columbia professor and author Ben Graham, who advised one of his students not to invest in 1951 because the Dow was at 250 and he might be better off waiting until it went below 200.

Had that student (who turned out to be Warren Buffett) taken that advice, he would still be waiting, because the Dow never visited 200 again.

The upshot of all this is that the events of the past month provide yet another powerful example that it is far wiser to spend your energy and analysis finding and owning good businesses than trying to predict when the market will suddenly make its next wild gyration one way or the other. When the market is closest to its extremes, those gyrations become almost unbearable, but that is when it is most important to remember the saying, "Don't get off the train."

For later posts dealing with this same subject, see also:
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