Finally, on the last trading day of the first quarter, the S&P 500 Index was able to make a
new all-time high. It took five and a half years to surpass its October 9, 2007 high and was cause for celebration on the news channels and publications.
We were glad to celebrate with everyone else, but the event was slightly saddening: after five long years of a roller coaster ride, Buy & Hope investors were finally even. Though true, it did not have to be that way.
Active management offers a real alternative that strives to avoid or minimize large losses. By missing the major part of a decline, less of the next advance is devoted to break even.
In the graph shown, the S&P 500 fell 50% from 1/8/08-3/9/09. With a Buy & Hope approach, a $100,000 portfolio would suddenly be worth just $50,000. More bad news: it will take a market gain of 100% just to recover the losses to returning to break even.
