As the media fights to fill a never ending news cycle and politicians need a crisis to justify their existence, we are inundated with bad news. Some based on fact and some simply hype. Whether real or imagined the stock markets will often react based on perceptions. It is then that hear the refrain “it’s different this time” – it really never is. Events change but markets react for the same reasons. Warren Buffet famously said that the four most dangerous words for investors are “this time it’s different”.
In 2013 we had a series of negative events ranging from a government shutdown to war the middle east. Despite many dips including a 7.5% drop in May the markets climbed by almost 30%. This is typical of what we have experienced over the last 50 years.
So what can we expect in the coming months? It’s hard to say. But keep in mind that despite short-term uncertainty, the U.S. markets are unrivaled for their strength. That has not changed. In fact, they have prevailed when shaken by crisis in the past. Although past performance does not guarantee future results, the Dow was at approximately 117 when Pearl Harbor was attacked, fell 20% to 93 by early May 1942 and then rallied to 145 by July 1943. In August 1962, at the time of the Cuban Missile Crisis, the Dow was at 615. It fell to 550 in October and then rose to 650 in December and 767 by December 1963. At the beginning of the 1982 the DOW was at 700 and by 1992 the DOW was at 3100 (source stock charts.com) .
Today our economy is still the envy of the world. We have historically low interest rates, low energy cost and little inflation. American companies are more efficient than ever before, are earning record profits and have record amounts of cash. America is the world leader in production and utilization of technology.
These reasons suggest sticking to your long-term financial plan now more than ever. More important, your present course was set according to a map of your future. Keep in mind that you’re investing for a lifetime – not for a week, a month or even the duration of the fight against terrorism. Unfortunately, what is seen as a positive indicator one day is discounted the next, which can be very confusing. Those constantly conflicting stories may be of interest to day-traders, but not to me and, hopefully, not to you. Instead of listening to the hype, we focus on you and your needs. That’s the information we need to make well-thought-out long-term investment decisions.
While the newspapers’ business headlines and TV financial talk shows can be entertaining, they often cause us to divert our concentration from our real objective . . . preserving wealth, protecting against unnecessary taxation and then striving to enhance portfolios as appropriate. My advice, therefore, is to generally ignore the media when it comes to news about individual companies’ performance or perceived influences on the markets. Whether you are ready to add to your investments or not, whatever you do, please don’t let the headlines upset you. They are meant to sell papers, not advise investors. As always we are here for you. Please contact us with questions, concerns or whenever we can otherwise be of service.
This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Randy Carver and not necessarily those of RJFS or Raymond James. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Investing involves risk and investors can incur a profit or loss regardless of strategy selected. Inclusion of indexes is for illustrative purposes only; investors cannot invest directly in an index.