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After the Bubble Burst: Salt in the Wounds

In early 2003, the bleeding finally stopped. But then the dust settled and reality set in. Millions of investors saw their portfolios cut in half (or more), and they spiraled into a vortex of depression and disappointment. What followed was a psychology student’s dream: a living demonstration of coping mechanisms.

Some investors just played ostrich and stuck their heads in the sand. It was easy to play “don’t ask, don’t tell” and simply ignore the statements from the fund and brokerage companies when they came in the mail. Why not? The fund companies aren’t going to call and ask you if you opened your statements this month—especially not if things are heading south.

Some of the most badly burned investors swore off the stock market for good. These investors considered this experience too painful, and today they are settling for low-yielding bonds, CDs, and money market funds, and they aren’t looking back. Better safe than sorry. Other investors just faced reality. They opened their statements, calculated their losses, and licked their wounds.

As if loading up on aggressive mutual funds and going through the worst market decline in three decades wasn’t enough for shareholders to endure, on September 3, 2003, New York Attorney General Eliot Spitzer kicked off a massive industry-wide probe. He alleged that four prominent fund managers had allowed a hedge fund to trade in and out of mutual funds in ways that benefited the parent companies at the expense of long-term shareholders. In short, the big guys were robbing the little guys.

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