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Well we started last year in a depressed mood that for many slid into panic and anger. After the worst year for stocks in most of our lifetimes in 2008, the beginning of 2009 brought continued declines amid falling house prices, continued job losses, negative GDP, Oprah talking about the people in tents in Sacramento, and some economic prognosticators suggesting the market would very likely go lower. Almost everyone was predicting that any potential recovery was sometime far in our future, and when it did occur it would be slow and methodical. At the beginning of 2009 there was little agreement on a stimulus package, creating additional uncertainty. By March 9, the market as measured by the S&P 500 was down 24.6%, which was on top of the big decline in 2008. No wonder moods were so bad.

Despite the gloom, there were a few historical signs that things could get better at some point, but there were no guarantees that this would occur. The more prevailing assessment was, "This time it's different." The potential positives were that money supply had been growing, which, historically, is a precursor to a floor of a recession; spreads on bonds, due to fear, were at historical highs, which means reversion to the mean would suggest a positive move from this level; a lot of money was on the sideline that at some point would represent demand when purchasing stocks and bonds; measuring after the 2008 decline, 10-year returns were at an historically low level on a 200 year chart, thereby suggesting a probability that the next decade might be more attractive; and last but not least, six months earlier Warren Buffett had taken money out of the safety of Treasuries and invested it in stocks saying, "These are good prices."

Now that we have the benefit of hindsight, we know that the S&P 500 contradicted all the first paragraph expectations and produced a 67.8% ascent from March 9 to December 31. Just as the decline was one of the most severe, this rally was one of the most robust the market has produced. When you lose money it requires a larger return to get back to even and move into positive territory, which is why a 67.8% rally after a decline of 24.6% yields a 26.5% gain for the year. Many years from now, when some young analyst is looking at the historical data, they'll probably assess 2009 as one of the very good years for the market. It's a correct assessment but it ignores the trauma of the journey.

The learning from all this seems to be that, as bleak as the world might seem relative to the economy and market expectations, behavior can change, which then affects outcomes, resulting in the unexpected actually occurring rather what was originally anticipated. It's happened before, it happened this time and it will no doubt happen again. It's what makes us all crazy!!!!! I'm hoping for a little more sanity in 2010.

Jerry Mosher, CFP(R) is a 30 year veteran of the financial planning industry and is president of Mosher & Ellis Financial Planning in Lafayette, California. He has been selected three times as one of the 150 best financial advisers for doctors by Medical Economics. Jerry may be reached at (925) 284-9470. Securities offered through AMERICAN INVESTORS COMPANY Member NASD/SIPC.