We Lost Joy, We Lost Fun

 | Dec 30, 2011 | 8:16 AM EST
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Life is a series of natural and spontaneous changes. Don't resist them - that only creates sorrow. Let reality be reality. Let things flow naturally forward in whatever way they like. -- Lao Tzu

We close the books on 2011 and, for the most part, market players are happy to say goodbye. The indices will finish roughly flat for the year with the Dow doing better than the IWM, and the Nasdaq somewhere in the middle. But the performance masks how challenging the market has been this past year.

The problem isn't that traders have racked up big losses -- in fact, I heard far fewer complaints in years when the indices were down big -- but that it has been so tough to gain relative outperformance. There have been obvious structural changes in the manner in which many stocks trade and that has caused widespread struggles for many as they battle the computer algorithms, the macroeconomic headwinds and the futility of individual stock picking. 

The market always presents formidable challenges. If it was easy, it wouldn't be so potentially lucrative. But what has been so troubling about the action for most of the year is how joyless the trading has been. Even when we have had some good rallies and big size moves there has been a lack of excitement and optimism. Traders never really embraced the market with the zeal that we have seen in the past. There has been little fun along the way and that has changed the nature of trading quite a bit.  

The most obvious evidence of the lack of any real love for this market is that we have had seven-straight months of outflows from stock funds as of the end of November and total withdraws for the year are more than $100 billion. That isn't a huge number, but it highlights the lack of interest in stocks that has plagued us often. After surviving the financial crisis in 2007 and 2008, market players are still quite skeptical about the market. 

The reasons for this attitude aren't hard to understand. Market players have had their hands full dealing with a lousy economy, housing prices that are still declining and stubbornly high unemployment. It is tough to be an aggressive speculator when the economic news never really seems to improve. Everyone has been touched directly and indirectly by the worst economic crisis since the Great Depression and we see that reflected in the way that people approach the stock market.

The challenges we faced in 2011 aren't going to suddenly end as we kick off 2012, but at least we can put them behind us and start off with a positive mindset. The great thing about trading and the stock market is that we can have a fresh start at any time we choose. We can clear the decks and start over again in a snap. We need not carry any baggage and don't have to dwell on the mistakes of the past. It is great therapy for traders to go to 100% cash at times and I highly recommend that it be done periodically.

I don't expect the year ahead to be easy and I certainly am not making any wildly optimistic predictions about how much the indices may appreciate, but I am very confident that we will have some great trading opportunities and plenty of potential to make some good money. The key is to just stay at it and to keep plugging away day after day.

The key to market success isn't insight and analysis. Grind it out and adapt as conditions change. There will always be opportunities and we just have to keep looking for them, ready to seize them. That is why I'm extremely optimistic about 2012 

We have a quiet start this morning and I don't expect anything major to occur today. We may see a little last minute positioning, but there are no major catalysts to drive us one way or the other.



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