“Our clients come to us for advice on how to protect their future. We take that level of trust very seriously.”
- Dan Junkin

The Falling Sky - Third Quarter, 2008

Dan Junkin

"The sky is falling," Chicken little said.  "I need to tell the King."   Is the sky really falling?  Probably not. 

As we at InvesTrust and many others have said over the last few months, "don't panic."  Now is not the time to sell or get out of the market.  That would be buying high and selling low.  Right now your portfolio may be showing some losses.  But those are just paper losses at this time.  The minute you sell and take the cash, you then have realized losses.  And that would be harder to stomach than just the paper ones. 

Again, this is nothing new from us.  But, let's look at it from a more numerical point of view to see if we can drive the whole "don't panic" thing home.

From the S&P 500's peak at 1516.35 in October 2000 to its bottom a year and a half later, it had a loss of about 46%.  Compared to the most recent boom/bust cycle:  from an October 2007 high to the low a week ago, the loss was about 24%. 

Now for the upside.  Since 1950, there have been ten stock market declines of more than 13% over three month periods.  Of those, eight were followed by twelve month rallies that gained more than 20%.  In fact, the average gain over the twelve months following a big decline was over 20%.  And to go further, over the total fifteen month periods studied, seven of the ten were net positive after the twelve month recovery.1  Good evidence for not panicking. 

This is a good time to point out the benefits of diversification.  Let's look at a diversified portfolio of domestic large cap stocks (30%), domestic small cap stocks (20%), international equities (10%), and fixed income (40%).  If an investor held this portfolio from the peak of the S&P 500 in October 2007 though September 25, they would have only lost 8% compared with a loss of over 15.6% for the S&P alone.   If you are diversified, this is an additional reason to not panic.

We have made some predictions in the last several months that things were looking better.  Obviously, we were off the mark.  There were things that we didn't know - couldn't know.  Like the fact that Wall Street doesn't look the same as it did a year ago.  There are big, storied, respected names that are no longer or are considerably changed:  Bear Stearns, Lehman, Fannie, Freddie, AIG and the rest of the investment banks. 

Honestly though, there is no way to know how much longer we have to wait for things to get better.  So, no more predictions about when the market will turn around and whether or not it will be positive at the end of the year.  Our only prediction is that it will turn for the better and as long as people don't panic and get out of the market - they will be better for it.

If you feel like the sky is falling, be reassured - it isn't.  It was just an acorn or two.

1 - Market recovery information was taken from The Market Analysis, Research and Education group, a unit of Fidelity Management and Research Co.

By the Numbers - Third Quarter, 2008

Karen Foust

Mortgages, oil, and the bailout, oh my. No matter the issue, the market is upset. The S&P finished the 3rd quarter down 8.49% and was down 19% year-to-date.

Large and small caps are both down this quarter.  But small caps still managed to out-perform large caps, -1.10% versus -9.47%.

Large value was in favor for the 3rd quarter at -6.11%. Large growth lagged at -12-57%.

Fixed income is a favorite again this quarter with a return of -0.48%. Domestic stocks (as measured by the Wilshire 5000) fell behind at -8.07%, and international reported a disappointing -21.05%.

Reuters Business & Finance reported consumer confidence at 59.8, higher than expected and higher than the 2nd quarter.  The increase was attributed to a lower expectation of inflation. However, the measure was taken on September 23rd, prior to the Dow falling 777 points on September 29th.

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