After a historic plunge and recovery in 2009, the outlook for investment gains in 2010 is strong. While most investors were cheering the market's recovery in 2009, these investors are just 'getting back to even' with the Dow having plunged from over 14,000 to 6,400 and now only back to the 10,000 range. At Bullbear, we emphasize not losing money in the first place, as it is far easier to keep account values high if they are not allowed to plunge. A 50% loss in account value requires a 100% gain just to get back to even, whereas a loss of 8% only requires approximately a 10% gain to get to new highs. Moreover, it is not Bullbear's strategy to take significant risks of permanent loss of account value by investing in shaky markets not supported by economic fundamentals. Bullbear's strategy is to invest in diversified groups of high quality stocks that have potential for long term earnings growth and to take profits quickly when they are available.
There is significant opportunity for gains in what should be another up and down year for the markets. The employment and housing collapse is being offset by the historic $20 Trillion in U.S. government support for the stock, bond and property markets. It remains to be seen if the economy can 'stand on its own two feet' without the crutch of government support. The government's goal is to keep property values as close to peak housing bubble levels as possible in the hopes that the economy's natural growth will reinflate housing values over time. However, Japan's experience is that not allowing a property bubble to deflate extends the pain for years, in Japan's case 20 years. The U.S. is different and more dynamic than Japan, but the consensus is the U.S. will still take many years for new growth to heal the economy. In the meantime, there will still be high quality growth companies to buy 'on the dips' as the uncertain economic picture swings back and forth.