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I hope you don't mind my checking in with you again, but I know
the news has continued to be scary and I just want to provide a
little perspective. For better or worse, the daily newspapers
and newscasts tend to be long on sensation and short on perspective
(I guess it goes without saying that scary sells better!).
Anyway, we had another decline in the stock market today as
concerns spread that the credit crisis is worsening. Although
governments around the world have been taking vigorous action to
shore up the financial sector, these actions take time to
unfold. I think it's important to recognize that there's also
a significant psychological dynamic that kicks in when markets reach
this point. Fear breeds fear and can create a self-fulfilling
prophesy of further declines. However, these things don't go
on forever, no matter how much it may feel like it in the
moment. Eventually, these declines always arrive at a point of
frenzied selling known as "capitulation" when everyone who is
inclined to sell finally piles in. Once that happens, there's
only one way the market can go: up.
We're also not seeing something unprecedented,
notwithstanding the media's tendency to sensationalize. Government
has intervened again and again in the past, as was the case with the
resolution of the savings and loan crisis of the 1980s and 1990s (as
I noted in a previous email). And this market
decline, while on the high end, is also
not the largest I've seen. This is, in fact, the
fourth time in my adult lifetime that the Dow has declined by more
than 30% (the Dow is currently down 39% from its recent
highs). Consider the following list:
Ending Date - Decline
Feb 2003
(49.1%)
Dec 1987
(33.5%)
Oct 1974
(48.5%)
The average gain over the 24 months following each of these three
declines was 47.7%. And that's probably my main point: we
could wish we hadn't experienced the declines of the past year, but
we are where we are and what we have to focus on now is whether
the future holds a greater probability of loss or gain. Based
on both historical precedent and the visible dynamics at work in the
world economy, I believe that by far we now face more upside than
downside.
Finally, just as an antidote to what you're seeing in the papers,
here are a few examples of the headlines that were on offer from
major newspapers during the 12 months leading up to the last
recovery:
"Outlook: A collapse in confidence that could take years to
overcome"
"Litany of worries sends stocks down. War talk, gloomy outlook
rattle investors"
"Companies stay downbeat about profit outlook; many cite war
threat in gloomy forecasts"
That's not to say that things aren't unsettling right now, but if
we assume that the best course of action is to stick with your
current investment plan (and I do assume that!), then here's a list
of some things we CAN do to reduce the stress:
1.) Today, I will not watch CNN, MSNBC, Fox News or any other
media source that thrives on bad news and reminds us of it 24/7.
2.) Today, I will not check the value of my portfolio to see how
much I have lost, or gained.
3.) Today, I will use the time saved by avoiding the things in #1
and #2 to read a book, watch a movie, take a walk, or take a
nap.
4.) Today, I will count the blessings in the other parts of my
life.
5.) Today, I will call or email a friend or family member I
haven't spoken to in a while to see how they are doing and to offer
the encouragement I have gained by performing affirmations 1-4
above.
Be well and, as always, don't hesitate to call us if you'd
like to talk.
Dave
David B. Yeske, CFP®
YESKE
BUIE . . . Live
BigSM
220 Montgomery Street, Suite
900
San Francisco, CA
94104
415-956-9686
www.YeBu.com
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