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MAKING CENTS OUT OF THE NEWS
Blog #9
(February 24th, 2009)
IN THE FACE OF THE STORM, STAY CALM!
By Tom McAllister, CFP™
The economic recession is upon us in full force. This is not the first time our society has experienced this, nor, I imagine, will it be the last.
In times such as these, the emotional reactions of fear, uncertainty, anger, and revenge, while normal, do not serve us well. Only by maintaining calm can we weather this storm.
Allow me to share a true story with you... After the September 11, 2001 terrorist attacks, the investment markets, already reeling from the bursting of the tech stock bubble, spiraled down to their low in September 2002. At that point, two of my clients, each owner of a large money management account, panicked. Against my advice and that of my trusted money managers, both clients ordered me to sell all their investments and close their accounts. Both clients sold out within one week of those stock market lows. Three months later, the overall markets (and our other managed money accounts) were up 25%!
I am sorry for what happened to these two families; I was fond of both of them. But neither I nor my money managers were responsible for their decision. It was contrary to our advice, and went against our experience and knowledge of how the markets operate.
Please know this: the panicky selling going on in recent months has created the best buying opportunities I have seen since the mid-1970s. (If you recall, the market ultimately recovered from the 70's lows, rising to twenty times that value over the following twenty six years.
Experienced money management professionals have learned to put aside their emotions and to make decisions based on facts, history, and knowledge of the workings of the markets. As Warren Buffet so aptly pointed out, it is the panic of investors and speculators that creates the opportunity to "return stocks to their rightful owners!" We try our best to make our clients be those rightful owners!
It is important to remember that the financial press tends to over-dramatize the news in order to generate attention and sell advertising. In fact, it is my personal observation that, in bad economic times, the financial press seems to do everything possible to make matters worse.
It is best, I advise, to focus not on the bad news, but on the reciprocal. Consider the fact, for example, that currently 91.4% of the workforce is employed!
As I share this with you, the Federal Reserve Bank is pumping huge reserves into the banking system. History says this move will eventually solve our financial gridlock and succeed in stabilizing the banking system. Understand, please, this action by the Fed is many times more important than the degree of success of the Obama Stimulus Plan signed into law last week, and which is not being well received by the markets.
Stay the course. Buy bargains where they exist. Things will get better!
Tom McAllister
Correction: In last weeks Blog #8 I should have used the word "rescind" regarding mark to the market rules.
With all the rapid changes in our economy and in the investment markets, there are many investors who would benefit from more consistent guidance. We are currently accepting new financial planning and investment clients, and would appreciate your referrals.
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