I am scared. Not of the stock market decline but of the doom and gloom so often reported, as you may be, that my emotions do signal me to do something. Something. How can any human being not be so affected? It is natural.
USA TODAY's headline for Tuesday July 1, 2008 reads: "Stocks lose $2.1 TRILLION DOLLARS - WORST SINCE GREAT DEPRESSION"
I read that and thought that this cannot be correct based on my information and studies of historical returns but my emotions got the better of me. After reading the article I found that, in reality, $1.4 trillion of the $2.1 trillion was lost in the month of June alone. Yes, a $1.3 trillion loss for the single month of June may be the worst since the Great Depression but that is a very different message.
The headline was very misleading but it did get me to do what headlines do, namely, to read the paper. And, there was no mention of what happened after the month of June. The Great Depression saw the stock market lose 80% of its value over an almost 3 year period (so we are not even close to that mark as the headline mislead me). Yet, in 1932 the stock market had its best gain ever of 42% - rarely mentioned.
Here are the facts:
We are down 10% for the month of June and nearly 20% since the high in October of 2007 - only 262 days ago. A 20% decline or more occurs, on average, about every 5 years (not every 70 years) and the average decline is about 26% and lasts for 11 months (363 days). The last time was 2000-2002 and it was longer than the average. We are just about right on time for this decline.
In the Washington Post on Sunday June 29, 2008, a well-known investment strategist for a large mutual fund company is quoted as saying that we may be in for a long and deep recession the likes of which we have not seen since WW II. Maybe? Maybe not?
With all of this pessimism, though, I am glad that I have, and have prepared for my clients, an Investment Policy Statement that reminds us why we might change the original investment allocation strategy. Entering a bear market is not a reason to change my strategy and selling stocks is assuredly not the action to be taken during these emotional times. What is? Possibly rebalancing by buying more stocks but that depends on each individual situation.
Ned Davis Research shows that there have been 33 bear markets since 1900 or about 30% of the time which means that stocks are going up twice as often as they are going down. During a snow storm it may seem like it will never stop but it does. This decline, too, will pass. Don't let your emotions control your investment actions.
An Introduction
Hi. Welcome to BourGroup and my blog. Phil
Phil Bour is a CERTIFIED FINANCIAL PLANNER(tm) professional since 2004, a Magna Cum Laude college graduate and an accounting professional for over 35+ years. I love numbers, statistics and economic history.
I am also an Enrolled Agent (EA) to represent taxpayers before the Internal Revenue Service and to prepare tax returns.
"Phil"osophy: I believe that you can manage your money on your own (not necessarily through individual stock selection but through mutual funds, ETF's and other solutions) once you receive some one-time, professional guidance. Why pay annual fees when there may be little added value? For additional information, first read the "An Introduction" label at the left. Then move on to others.
Phil Bour is a CERTIFIED FINANCIAL PLANNER(tm) professional since 2004, a Magna Cum Laude college graduate and an accounting professional for over 35+ years. I love numbers, statistics and economic history.
I am also an Enrolled Agent (EA) to represent taxpayers before the Internal Revenue Service and to prepare tax returns.
"Phil"osophy: I believe that you can manage your money on your own (not necessarily through individual stock selection but through mutual funds, ETF's and other solutions) once you receive some one-time, professional guidance. Why pay annual fees when there may be little added value? For additional information, first read the "An Introduction" label at the left. Then move on to others.