2011 Summary

24 Mar

The major markets closed 2011 at almost the exact levels that they began the year. As the graph below indicates, stocks spent most of the first half of 2011 in positive territory and most of the second half under water – creating buying opportunities that positioned the postCynical Fund for growth in 2012.

On Friday, December 30th, the last day of trading in 2011, the Dow Jones industrial average closed up 5.53 percent for the year at 12,217.56. The NASDAQ closed down 1.8 percent for the year at 2,605.15. The S&P 500 was unchanged in terms of price performance for the year at 1257.60; however, it had a total return of 2.11 percent in dividends paid to investors.

But to compare only the starting and ending points is deceptive. Stocks have been on a roller coaster ride, regardless if the starting and ending points are similar. 2011 confounded smart investors who applied the old models to the new economic reality, and created opportunities for investors who took a long-term view to wealth recovery.

In March, markets were initially jolted by the Japanese earthquake and tsunami, but then began to recover as the damaged reactors came under control. However, the dysfunctional political process in the U.S. regarding the budget and debt ceiling in July led to a downgrade of U.S. debt and an almost 20% decline in stock prices. At the same, time the sovereign debt crisis in Europe caused fears of a Lehman-type crisis in which the default of sovereign debt could spread to from country to country as well as cause defaults of European banks.

When the market bottomed on October 4, many investors believed that another deep global recession was on the horizon. However, U.S. markets enjoyed a strong recovery in the fourth quarter, as fears of a recession receded due to better-than-expected economic performance and strong corporate earnings. Gross domestic product (GDP), unemployment, and housing statistics each showed signs of improvement.

Uncertainty and volatility drove the markets. The CBOE Volatility Index (VIX), widely deemed to be the best measure of fear in the market, finished up 31.8 percent for the year.

The postCynical Fund (PCF) was created in response to the financial crisis of 2008-2009 as an investment alternative for family and friends. While still in its infancy, PCF is building cash reserves while leveraging current market volatility to produce wealth replacement over the next 5-10 years.

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