Counting Blessings Along With the Losses

Try finishing this sentence: “The best thing about my experience as an investor in 2001 was ... “

Many Americans, contemplating the losses they’ve suffered this year in the stock market, might say there was nothing “best” about what happened to them--in fact, nothing good at all, perhaps other than that it might have been worse.

With share prices on the rise again, the damage to portfolios has been lessened. Even so, stocks will have to post strong gains in the next six weeks to keep this from being the market’s worst calendar year since 1977.

The blue-chip Standard & Poor’s 500 index rose 1.6% last week, but it’s still down 13.8% year to date.

Yet those losses, while certainly not trivial (especially when they’re yours), can obscure what arguably are some very positive aspects of this year’s experiences.

With investing, adversity can be a more important teacher than success. If you’re having trouble this Thanksgiving week finding reasons to be thankful about anything investment-related, try these on for size:

* “Asset allocation” is no longer just a quaint theory. The paramount investing rule has always been to spread your money around to reduce risk. But it took the worst stock bear market in 25 years to bring this lesson home for many people who thought equities only rose in value.

Now, millions of investors have a far better appreciation for just how much they can lose in stocks--and how bonds and short-term cash savings can offset market losses and preserve capital.

It has been a hard lesson, to be sure. But investors who take asset allocation to heart will be laying a much more solid foundation for their money in the long run. And don’t underestimate what that can mean for your peace of mind long term.

* The wisdom of saving money on a regular basis has been relearned. In the late 1990s, many economists lamented how the U.S. savings rate continued to shrink. Some people felt there was little need to put significant new sums into savings when the stocks or stock mutual funds they owned seemed to be rising nonstop.

In other words, many Americans were letting the stock market do their saving for them when share prices were rising 20% or more each year.

Now, with shares down and with the likelihood of much more moderate returns on stocks in this decade, it’s clear that many people will have to find a way to save regularly if they’re going to meet their long-term financial goals, especially retirement.

This may not be a pleasant reality, but it’s better for most people to have faced this fact sooner rather than later, while there may be time to make up lost ground.

* A healthy skepticism has replaced mindless euphoria about stocks and those who tout them. The market’s slide has discredited a legion of Wall Street analysts, money managers and others whose knowledge, understanding and judgment were clearly lacking, in retrospect.

Investors have come to see that having blind faith in those who present themselves as “experts” is a highly dangerous strategy, if it can be called a strategy at all.

Sure, it may have been more fun when technology stocks were shooting the moon and nobody had much use for reviewing a company’s fundamentals. But that wasn’t investing--it was speculating, and on a massive, and ultimately ruinous, scale.

People have learned to be less trusting about what others say about the market, and that is more likely to be beneficial than detrimental to their portfolios in the long run.

Just ask anyone who shifted their entire 401(k) retirement savings sum into aggressive-growth mutual funds in the first quarter of 2000--right before the market peaked--because of the bullish comments of some 25-year-old tech stock analyst. Those investors aren’t likely to make a move like that again.

* Free-market forces are weeding out the weak players and the phonies. Capitalism may be harsh, but it’s efficient when the good times end and it’s time to find out which companies truly have talent and staying power--and deserve more capital.

Hundreds of dot-coms have failed, but who really misses them? Is it any harder to find what you want on the Internet? It probably would have been much worse for all concerned if those companies had sucked up investors’ funds for another year instead of failing when they did.

But the market isn’t just eliminating small companies that never had much of a future. The financial near-collapse of energy giant Enron Corp. exposed a business that twisted accounting rules to its own benefit--to the point that the company now concedes that financial statements all the way back to 1997 “should not be relied upon.”

Also to be weeded out, though over a longer time period, will be mutual fund managers whose performance running other peoples’ money has been a nightmare for those investors--meaning, the returns produced have been far worse than what the investors would have achieved in the average fund in that particular sector.

These managers know who they are--and, hopefully, their shareholders know by now as well, and will vote with their feet.

The free market also is reminding cartels just how tough it is to control prices.

Once again, the Organization of Petroleum Exporting Countries has lost its ability to prop up crude oil prices, which have sunk to two-year lows amid the weak global economy. That’s lousy for OPEC, but it’s great for every energy consumer.

* The market’s woes have altered many investors’ priorities for the better. The wild bull market of the late 1990s demanded peoples’ attention, and got it.

For some, stocks became an obsession. Their portfolios dominated their lives, especially if they were actively trading shares. They believed they were going to be rich, or richer, and that it was all because of how smart they were.

Now, most people have been humbled by the market. In the process, some have realized that they don’t want their mood determined by their portfolio’s day-to-date price changes.

The Sept. 11 terrorist attacks, of course, also changed many peoples’ view of what truly matters to them.

Money is important, but you aren’t your stocks, and they aren’t you. Life is more than a daily stock quote.

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Tom Petruno can be reached at tom.petruno@latimes.com. For recent columns on the Web, go to www.latimes.com/petruno.