Five More Ways to Handle Market Stress

There is no way to sugar coat what I am about to say. The markets have really stunk this year. They are totally awful. If your portfolio is down for the year don't let that get you down in the dumps. Sometimes it pays to take a step back and analyze the situation from a rational perspective.

As I wrote in "Seven Ways to Handle Market Stress," "We will have many losing days, some 'down' months and an occasional 'off' year. What you need to do is keep focused on your long-term objectives while managing risk in the short-term. Remember, had you bought the [S&P 500] on the day before the 1987 market crash, your cumulative return through the end of July 2007 -- without dividends -- would be 415%. That is even after giving up 20% on the first day after your investment."

The S&P 500 has declined in 15 of the 58 years since 1950. That is a little more than 25% of the time. The average decline in those years was 12.21%. There is no telling which years will be down. Sometimes you can predict it and sometimes you can't. However, remember that from 1950 to 2007 the simple average annual return for the S&P 500 was +9.26%. That includes up years, down years, bull markets and bear markets.

So here are five more ways to cope with and interpret market volatality.

1. Understand This: You Are Not Alone

The current market is not a market that's conducive to growth and/or value investors. To give some perspective, let me list some household investment names and their year-to-date (YTD) returns:

Berkshire Hathaway (BRK.A Quote) (Run by Warrren Buffett & Charlie Munger): Down 17.02%*

CGM Focus Fund (CGMFX Quote) (Run by Ken Heebner): Down 14.48%**

Fidelity Contrafund (FCNTX Quote) (Run by William Danoff): Down 16.97%**

*Calculated by LakeView Asset Management

**Source: Morningstar

I will also note that the S&P 500 has fallen 14.94% this year. (Note: All figures are YTD through the close of Sept. 11, 2008.)

If your current investment portfolio return is similar to the returns of the money managers listed above, then you're in good company.

Personally, I count myself as a value and growth oriented investor, rather than a "trader" or "technician," and will admit that this has been a poor year for my performance vs. some outstanding years in the past.

I will guarantee you that the managers listed are not closing up shop (see No. 4 below). Please note that they are all long-term investors and not short-term traders. Ask yourself this question: Would you fire any of them just because they are having a bad year? I wouldn't.