We have a lot to be concerned about these days—the economy, unemployment, the deficit, the ineffectiveness of government, terrorism—the list goes on. We can work ourselves into quite a state of panic speculating on what the ultimate outcome of these issues will be or over concern about whether or not it could actually get worse.
God willing, I have many more years left on this earth, but I’ve also been here long enough that it’s not my “first rodeo” in terms of experiencing some of what we’re going through. I think I understand what some recent or soon to be recent college graduates must be feeling right now. I was a soon to be graduating senior in 1981, and while we had pretty much bottomed out from the horrendous economy of the 70’s, I am quite sure we didn’t know it at the time and prospects didn’t look good. There was plenty of bad stuff going on in the world then as well. Most notably, we had just come out of the Iranian hostage crisis; a national nightmare that gave us perhaps one of our earliest significant indicators in modern times that there were factions out there that intended to inflict harm upon our nation and we seemed frustrated in not knowing what to do about it. The Arab oil embargo of the 70’s and waiting in line for expensive gasoline were also still fresh in our memories. I took a job as a deckhand on a tug-boat in the Gulf for 4 months until I got an opportunity to actually apply my college degree. (I learned a lot about life on that boat, too.) You might say things are different now, but for my money they were just as bad. I know this because I was there—as were many of you.
Also, as many of you do, I must manage the challenges of planning for retirement while still contending with educational expenses and additionally worrying about aging parents and trying to make sure the years they have left can be lived with their dignity intact.
And yet I tell you now, that I have complete and unshakeable faith that things will get better.
Think about it—the evidence that things improve and get better over time is all around us. The human race has progressed from a time before the wheel was invented to the present when some cars can park themselves. What about medicine? For all the wrangling and complaining about health care reform and a broken health care system, we fail to remember sometimes we routinely recover from illnesses such as colds and flu that could have easily killed us 100 years ago. What about the advancements in computer technology? I have seen quoted more than a few times that we carry more computer power in our smart phones than Apollo crews had access to in the vehicles that carried them to the moon. I am not much of a technology person, but I have no trouble believing that. Was all this progress achieved without setbacks, temporary failures or even tragedy? Of course not—but still we advanced.
But what about the stock market and what do any of these examples have to do with the “price of eggs in China”? (Bad example these days I guess – as many things have a lot to do with the price of anything China). However, when we do examine the stock market, the evidence also suggests that things will get better. On April 30th, 1981, the Dow Jones Industrial Average closed at 995.59—about a week before I was to graduate from college and as referenced before, I did not have a job. On Friday December 16th, the last closing day as I write, the Dow closed at 11,866.39 after a fairly poor week. Since then I’ve had a few jobs with my favorite being my current one for the last 16 years - working for myself helping people achieve their goals... it’s a great country. This is evidence of one thing—growth—and I am not concerned that we still have not returned to the October 8th, 2007 closing high of 14,093.08. I believe we’ll get there again because the historical evidence says we have always eventually surpassed previous high marks.
What about bear markets? A bear market is defined as 20% decline in market value from a previous high. We have had 13 such declines (almost 14 if you consider the 18-19% drop in the S&P 500 Index earlier this year) since the end of World War II. Each and every one of these was followed by a recovery and subsequently higher levels were achieved. By the way, the same is true for all the bear markets that occurred before World War II. Therefore the historical evidence is quite clear that the declines were “temporary”, while the growth over time appears to be “normal”—and it’s not a “new-normal.”
We have many tools and strategies available to us and more information is available than ever before. You can build the best investment strategy and the best portfolio allocation in the world. But still, the successful long term investor must have faith that things will get better. I believe it’s the minimum requirement, because without it, you’ll be undisciplined and you won’t stick with your strategy. You’ll allow your emotions about short term events and situations to guide your decisions, which will more than likely result in poor investment outcomes.
The popular financial media would have you believe that you must dwell in the moment and sit on the edge of your chair waiting for the next piece of news (usually bad) that—yes—you must react to. They continue to beat the drum that—once again—this time is different. Please, do NOT let yourself fall into this trap. The causes or the catalysts for our current economic predicaments may be different from those in the past, but in terms of how we measure our economy, we’ve been here before and as we have before, we’ll get to a better place in due course.
With the New Year approaching, make two of your resolutions to have an investment plan you are confident in and then have the faith to trust that plan. If you don’t have a plan—get one.
To all of my clients and friends (and you’re the same people in many cases) I want to wish you the happiest Holiday Greetings and a safe and wonderful New Year. Personally, I am thankful for my family, my health and the opportunity to help people achieve their goals. Whatever is coming next, I am looking forward to it, because whatever is, I know it brings us a step closer to better times.
All indices are unmanaged and investors cannot invest directly into an index. Past performance is no guarantee of future results.
God willing, I have many more years left on this earth, but I’ve also been here long enough that it’s not my “first rodeo” in terms of experiencing some of what we’re going through. I think I understand what some recent or soon to be recent college graduates must be feeling right now. I was a soon to be graduating senior in 1981, and while we had pretty much bottomed out from the horrendous economy of the 70’s, I am quite sure we didn’t know it at the time and prospects didn’t look good. There was plenty of bad stuff going on in the world then as well. Most notably, we had just come out of the Iranian hostage crisis; a national nightmare that gave us perhaps one of our earliest significant indicators in modern times that there were factions out there that intended to inflict harm upon our nation and we seemed frustrated in not knowing what to do about it. The Arab oil embargo of the 70’s and waiting in line for expensive gasoline were also still fresh in our memories. I took a job as a deckhand on a tug-boat in the Gulf for 4 months until I got an opportunity to actually apply my college degree. (I learned a lot about life on that boat, too.) You might say things are different now, but for my money they were just as bad. I know this because I was there—as were many of you.
Also, as many of you do, I must manage the challenges of planning for retirement while still contending with educational expenses and additionally worrying about aging parents and trying to make sure the years they have left can be lived with their dignity intact.
And yet I tell you now, that I have complete and unshakeable faith that things will get better.
Think about it—the evidence that things improve and get better over time is all around us. The human race has progressed from a time before the wheel was invented to the present when some cars can park themselves. What about medicine? For all the wrangling and complaining about health care reform and a broken health care system, we fail to remember sometimes we routinely recover from illnesses such as colds and flu that could have easily killed us 100 years ago. What about the advancements in computer technology? I have seen quoted more than a few times that we carry more computer power in our smart phones than Apollo crews had access to in the vehicles that carried them to the moon. I am not much of a technology person, but I have no trouble believing that. Was all this progress achieved without setbacks, temporary failures or even tragedy? Of course not—but still we advanced.
But what about the stock market and what do any of these examples have to do with the “price of eggs in China”? (Bad example these days I guess – as many things have a lot to do with the price of anything China). However, when we do examine the stock market, the evidence also suggests that things will get better. On April 30th, 1981, the Dow Jones Industrial Average closed at 995.59—about a week before I was to graduate from college and as referenced before, I did not have a job. On Friday December 16th, the last closing day as I write, the Dow closed at 11,866.39 after a fairly poor week. Since then I’ve had a few jobs with my favorite being my current one for the last 16 years - working for myself helping people achieve their goals... it’s a great country. This is evidence of one thing—growth—and I am not concerned that we still have not returned to the October 8th, 2007 closing high of 14,093.08. I believe we’ll get there again because the historical evidence says we have always eventually surpassed previous high marks.
What about bear markets? A bear market is defined as 20% decline in market value from a previous high. We have had 13 such declines (almost 14 if you consider the 18-19% drop in the S&P 500 Index earlier this year) since the end of World War II. Each and every one of these was followed by a recovery and subsequently higher levels were achieved. By the way, the same is true for all the bear markets that occurred before World War II. Therefore the historical evidence is quite clear that the declines were “temporary”, while the growth over time appears to be “normal”—and it’s not a “new-normal.”
We have many tools and strategies available to us and more information is available than ever before. You can build the best investment strategy and the best portfolio allocation in the world. But still, the successful long term investor must have faith that things will get better. I believe it’s the minimum requirement, because without it, you’ll be undisciplined and you won’t stick with your strategy. You’ll allow your emotions about short term events and situations to guide your decisions, which will more than likely result in poor investment outcomes.
The popular financial media would have you believe that you must dwell in the moment and sit on the edge of your chair waiting for the next piece of news (usually bad) that—yes—you must react to. They continue to beat the drum that—once again—this time is different. Please, do NOT let yourself fall into this trap. The causes or the catalysts for our current economic predicaments may be different from those in the past, but in terms of how we measure our economy, we’ve been here before and as we have before, we’ll get to a better place in due course.
With the New Year approaching, make two of your resolutions to have an investment plan you are confident in and then have the faith to trust that plan. If you don’t have a plan—get one.
To all of my clients and friends (and you’re the same people in many cases) I want to wish you the happiest Holiday Greetings and a safe and wonderful New Year. Personally, I am thankful for my family, my health and the opportunity to help people achieve their goals. Whatever is coming next, I am looking forward to it, because whatever is, I know it brings us a step closer to better times.
All indices are unmanaged and investors cannot invest directly into an index. Past performance is no guarantee of future results.
E-mail Kimber with any thoughts you may have regarding this post.