VIEWS: 4 PAGES: 2 POSTED ON: 4/28/2010
WILLIAMS PALMER V o l u m e 1 , I ss u e 3 PERSPECTIVE A u g u s t 2 2 , 20 0 7 Increased Volatility, Credit Crunches, Mortgage Meltdown OR why you should ignore the news and enjoy the summer … While it has been a relatively mild summer (few days over 80+ degrees) it has been a very hot time for the financial markets. Screaming headlines about a mortgage meltdown inducing worldwide financial panic have made investors nervous. Major market indices have retreated from recent highs by nearly 10% (as of this writing). Inevitably when this kind of volatility occurs there are two typical reactions from investors: “This time it could be different, the sky really is falling” INSIDE THIS ISSUE: -or- Why you should ignore 1 “Let’s get out of our investments and wait to come back in when things are more the news and enjoy the stable, opportune, safe, _____________.” summer Coping Mechanisms 2 While having these concerns/questions/panic attacks is perfectly understandable, Final Thoughts 2 acting on them can be quite damaging. If you have not fallen prey to such reac- tions, then you are to be congratulated. We, in fact, are quite proud that our dis- tinguished family of clients has not succumbed to such destructive thinking. The truth is that corrections like the one that we are experiencing are a recurring part of long-term investing and must be ignored. Unless you can perfectly time the top and the bottom of the market, then the only way to survive is to stay invested. Consider the following: It is commonly stated that there are people out there that can time the market — that the “smart money” gets out of stocks at the top and scoops up cheap shares at the bottom thereby making obscene profits while avoiding the losses that the rest of us dumb slobs have sustained. There are currently several purveyors of books and software that claim to teach you how to join the smart money, but never forget: Those who can, do - Those who can’t, have an infomercial. So why can’t anyone time the market? The simple answer is that it is vastly more difficult than it appears and you must be perfect over a very long period of time to show any significant result. Here are some simple statistics: From 1926-2004, a capitalization weighted index of U.S. Stocks gained a geometric average of 10.04% annually. Missing the best 48 months, or 5.1% of all months, reduces the annual re- turn to 2.72%. For the 1963-2004 timeframe, the findings were similar. The index gained at a geometric average annual rate of 10.84%. If the best 90 trading days, or 0.85% of the 500 108th Ave. NE #700 10,573 trading days, are set aside, the annualized return tumbles to 3.20%. Bellevue, WA 98004 Translation: Between 1963 and 2004, nearly 96% of total dollar gains occurred during only Phone: 425-637-3037 0.9% of the trading days!1,2 Fax: 425-635-5120 -Continued on page 2 Web: www.WilliamsPalmer.com Securities offered through Pacific West Securities, Inc. Member FINRA/SIPC 555 S. Renton Village Pl. Ste 700 Renton, WA 98055 (425)271-3550 Williams Palmer, LLC - A Registered Investment Advisor Continued from page 1: So your task as a market timer is to find those excruciatingly rare times (less than If investing is entertaining, if you’re a percent of the months between 1963 and 2004) when it will pay to be in the having fun, you’re probably not market. I don’t know about you but that seems like an impossible task to us. But making any money. Good invest- what if it were possible? Wouldn’t everyone do it? Imagine if all the investors in ing is boring the world knew that the market was going to go down by 10 % this summer. In -George Soros executing their plans the community of investors would create the debacle they seek to avoid: all selling at once, no buyers. This illustrates the further point that you not only need to be right about when to be in and out of the market (a 1% needle in a haystack) but you must also be To get profit without risk, experi- alone in your prescient knowledge. ence without danger, and reward without work is as impossible as it is to live without being born. COPING MECHANISMS -A.P. Gouthey So what is one to do to combat this negative environment? 1) Stop watching TV and quit scanning the internet for “reasons” for the market’s behavior. Not too many days ago, the headlines on a well-known financial news website changed from “Fed can’t save the market.” to “Fed saves the market.” Success depends on your backbone, within about an hour. The media’s role is to create panic and crisis in order to not your wishbone. drive up ratings, and this does not help anyone make sound financial decisions. -Anon. 2) Don’t look at short term results. Sure, the S&P is down nearly 10% off it’s July highs. Any idea how the S&P fared over the last 12 months? It’s up about 9%. How about the average over the last three years? It’s up a little more than 9% per year. And the last five years? Yep, it’s up nearly 9% per year. Now what was all this fuss about?2 3) Find the time in the recent past when the market averages were at the same lev- els as they are today. How did you feel then? If you felt positive and optimistic, do so again. 4) Get cash off of the sidelines. This is exactly what if feels like to buy low. FINAL THOUGHTS One of the most important lessons to take away from these tumultuous times is this: Market volatility, corrections and even the occasional bear market are the price we must pay to achieve long-term investment results. Any attempt to circumvent this reality by getting in and out of the market will likely lead to vastly inferior per- formance. Despite our zealotry for this philosophy, we recognize that recent devel- 500 108th Ave. NE #700 opments in the various investment markets may be making you uneasy. If you find Bellevue, WA 98004 yourself in this camp, client or not, we invite you to give us a call to discuss your own personal retirement plan and reinforce the logic that the best thing to do in Phone: 425-637-3037 times like these... is often nothing. Fax: 425-635-5120 1. From Stock Market Extremes and Portfolio Performance 1926-2004. A study commissioned by Towneley Capital Management and conducted by Professor H. Nejat Seyhun, University of Michigan. 2. Past performance is not a guarantee of future results. Visit us on the Web! www.WilliamsPalmer.com U P C O M I N G … S E P T E M B E R 3 : L A B O R D A Y — W I L L I AM S P A L M ER C L O S ED OCTOBER 8-12: Q3 PERFORMA N C E R EP O R T M A I L I N G Securities offered through Pacific West Securities, Inc. Member FINRA/SIPC 555 S. Renton Village Pl. Ste 700 Renton, WA 98055 (425)271-3550 Williams Palmer, LLC - A Registered Investment Advisor
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