Guest Author - Guido Deboeck

Let’s say you have done well, made a decent return since you started investing in late 2002, early 2003 or any time thereafter. You feel good about yourself. You figure that you learned a great deal about investing and are becoming a pro. Are you or are you walking on tin ice?

Obtaining good results in 2003 was not too difficult; achieving good results in 2004 and 2005 was more difficult because it was a real stock pickers market. Now in 2006 the major US markets have so far not moved a great deal; actually they have been in a trading range since January 11, 2006. If you read your newspaper today (03/14/2006) and figured out “who has the ball” (see: The market direction determines who has the ball), maybe you concluded that there is a new direction…

When assessing how much you know or have learned about the financial markets it is useful to stay alert and take a longer term perspective than the past two or three years.

Most people, like I do, have poor memory of the long term but financial markets have a tendency to imprint certain events that one can never forget. I recall October 1987 when the markets went down by 23% in one day. As the market trend was rather positive many investors had accumulated quite a bit of unrealized gains, when suddenly on that famous October 19th, all those gains disappeared. To me this came after only four years of investing.

Another year that stays vividly in my memory is 1990, when just about all stock markets around the globe dropped like a stone. The Morgan Stanley global stock market index decreased that year by more than 20%. Later in the nineties, there were the financial crises in Asia, Russia and the Japanese recession, all of which had an impact on financial markets.

In more recent history we had the market decline from March 2000 till October 2002. Who can forget that the S&P 500 in that period lost some 45% of its value and that the NASDAQ declined by more than 70%? Meaning, if you were unfortunate enough to jump into the markets in late 1999 or early 2000, your capital dropped in half, even if you simply stayed in an index-based S&P 500 fund.

The invaluable lessons learned from market declines over many cycles, is what distinguishes a notice from a pro. To learn the ropes one often has to go thru several setbacks, have the courage to get up again, and keep learning. Too many new to investing enjoy the markets for a while when they are going up, but on the first real setbacks, when they loose some money, are throwing in the towel or throwing out the bathwater with the baby.

Learning to invest takes time, give yourself that time, stay in the game because you never know when the ball will come to you and you got to run with it the greatest possible distance.