CHAPTER 1

The Stock Market = Bull Markets + Bear Markets

The first rule is not to lose. The second rule is not to forget the firstrule.

—Warren Buffett

In the battlefield that is the stock market, there are the quick and thereare the dead! ... The fastest way to take a bath in the stock market is to tryto prove that you are right and the market is wrong.

—William J. O'Neil (How to MakeMoney in Stocks, 2002, p. 54)

ING DIRECT SHAREHOLDER SURVEY

Before covering the stock market's performance in bull and bear markets, let'sfirst begin by reviewing the results of a survey of 1,021 young (ages 21 to 39years) and old (ages 40 to 65 years) investors conducted by ING DIRECT to obtaintheir views about investing in the stock market. The study was conducted onlinefrom January 7 to 19, 2010, ten months after the market bottomed in March 2009.The survey questioned these investors on the following subjects: confidence andoptimism, influencers, motives, barriers, and expected returns.

The key survey findings were as follows:

* 43 percent of those 21 to 39 years of age plan to invest more in 2010 comparedwith 33 percent of those 40 to 65 years of age.

* 26 percent of younger investors and 28 percent of older investors expect anannual return of between 10 and 20 percent.

* Older investors are leading the trend to become self-directed investors.Almost half (49 percent) of those 40 to 65 years of age have reduced oreliminated their reliance on financial professionals compared with 37 percent ofinvestors aged 21 to 39 years.

* Younger investors currently rely more on financial Web sites and blogs (49percent) and financial print publications (39 percent) than on financialplanners or advisors (35 percent) or brokers (18 percent) for investing advice.

* Investors aged 40 years and older also rely more on financial Web sites andblogs (47 percent) and financial print publications (41 percent) than onplanners or advisors (39 percent), brokers (36 percent), and family (19percent).

* On average, investors think that they need $699 to get started investing.

* Almost half (48 percent) of younger investors think that they need more than$500 to start investing compared with 56 percent of older investors.

* Almost half (44 percent) of those with access to an automated platform thatenables investing in small dollar amounts say that you can get started with just$100 or less.

* Almost one-third (30 percent) of the younger group say that their parents hadthe biggest influence in getting them started investing.

* 17 percent of investors 40 to 65 years of age say that their parents had thelargest influence in getting them started investing.

* 81 percent of respondents who own a brokerage account and who are fullyemployed have a retirement account:

* 34 percent are between 35 and 44 years of age, whereas 77 percent of thosewith no 401(k) account are older or younger than Generation X.

* 47 percent earn at least $125,000 annually, compared with just 25 percentamong those who do not own a 401(k).

* 56 percent have at least a college degree or more education compared with 41percent among those who do not own a 401(k).

* Over half (52 percent) of investors plan to invest about the same amount in2010 as they did in 2009, and surprisingly, about 4 out of 10 (37 percent) planto invest more.

* Just 11 percent say that they plan to invest less in 2010.

* Younger investors are even more optimistic. Forty-three percent of those 21 to39 years of age plan to invest more in 2010 compared with 33 percent of those 40to 65 years of age.

* More than 6 in 10 (63 percent) either plan to make no changes in theirapproach or plan to take a more aggressive approach to what they perceive as abuying opportunity.

* 22 percent say, "I think now is a great time to invest. I'm taking a moreaggressive approach."

* Another 41 percent say, "I believe in a long-term view when it comes toinvesting, so I'm not making any changes to my investments."

* Just 5 percent indicate they have headed to the sideline with their choice ofthe statement, "It's too risky. I don't want to invest right now." Thirty-onepercent say, "I'm more conservative than before, but it's still okay to invest."

* .61 percent of investors expect an annual return of between 5 and 10 percenton their money.

* 26 percent of younger investors and 28 percent of older investors expect anannual return of between 10 and 20 percent. The weighted-average return is 11percent, considering all responses.

* 45 percent of investors have either reduced or eliminated their use offinancial professionals for investing advice. Older investors are leading thistrend. Almost half (49 percent) of those 40 to 65 years of age have reduced oreliminated their reliance compared with 37 percent of investors aged 21 to 39years.

* 62 percent of younger investors indicate that the cost of advice was thereason they reduced or eliminated their reliance on financial professionals forinvesting advice. By comparison, 57 percent of investors 40 to 65 years of agefeel that they can do just as good a job on their own.

* Family members (40 percent) are being used by more young investors for advicethan brokers (18 percent). Investors aged 40 years and older also rely onfinancial Web sites and blogs (47 percent) and financial print publications (41percent) more than planners (39 percent), brokers (36 percent), and family (19percent).

SURVEY OF AFFLUENT INVESTORS INDICATES CONCERNS

Let's look at another survey of investors that focuses only on more affluentinvestors. Merrill Lynch Affluent Insights Quarterly Survey results were basedon interviews with 1,000 affluent investors with investable assets of at least$250,000 on June 11 and 29, 2010, and another 300 Americans in each of 14 targetmarkets. The source of this...