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Don't Jump - Fourth Quarter, 2008

Dan Junkin

Although, it is possible you might take this to have more than one meaning.

The intention is to caution you against jumping out of the stock or bond market, because of what has happened in 2008. No two ways about it, '08 was a truly difficult year for investors. Through the first eleven months, the stock market was off some 40%. And any fixed income securities which had even a hint of troubled mortgage or other worrisome assets - were down hard. To top it off, we saw a dramatically restructured financial landscape at the end of the year. Banks, investment banks, brokers - some of the biggest names in the business - were humbled or destroyed or forced into unhappy marriages with other firms.

So, wanting to vacate the stock and bond markets is a natural reaction. Move to something safe... Never darken the stock or bond door again....  Indeed, if that is how you feel, you are in good company.

However, past history indicates that when investors reach the point of maximum pessimism - that is almost always a bottom. If enough people give up and sell, that is called capitulation. Long time market watchers consider capitulation to be a good thing, because the pessimism can't get any worse. And from bottoms, we have upside.

If you follow the logic so far - that ultimate pessimism leads to markets recovering - then you see why this is titled Don't Jump! Furthermore, when markets began recovering in the past, the first part of the up-leg is often the most powerful. Missing that part of a recovery - while waiting on the sidelines for positive confirmation - may keep you out of that strong start.

Maybe, you took our title to have something to do with flinging yourself from the nearest window. And we would urge caution about that as well. A little historical perspective may help. Bad as this year's fall in stocks is - we are only back down to where we were in 2003. It isn't like we have lost 10 or 20 years of hard-fought earnings. It is important to remember that the stock market is up two-thirds of the time and down one-third.

Persistence and staying invested - that is what has paid off in the past. We believe a similar pattern will repeat itself in the future.

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