Learning Center
Plans & pricing Sign in
Sign Out

WP Newsletter Template


									                 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

                               ““This time it could be different, the sky really is falling””
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, _____________.””
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

                         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!                   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

To top