By Richard L. Kesner, President
The CommonWealth Group
Before I forget, I must give credit to columnist, speaker and author Nick Murray for putting into words what we have been saying to clients over the last six months. Nick is an expert at breaking complex issues down to basics. Most of the thoughts in this article come from his insight.
Clients call daily with concerns over the market. Even clients strongly dedicated to long-term investing are seemingly changing their views on the market; they are starting to look at "data points" more frequently. As we stated in an article a few weeks ago, an investor can look at his balances every day and arrive at the same point as an investor who does not look at his balances, but with much more stress. Stress causes emotion that causes poor decisions.
NO ONE KNOWS WHERE THE MARKET BOTTOM WILL BE. I WANT TO STRESS THAT FACT. NO ONE KNEW WHERE THE TOP OF THE MARKET WILL BE.
Doesn't it seem interesting to all of you that we are listening with conviction to all of the journalists, analysts experts etc who two years ago told us the market was undervalued and that a Dow of 20,000 was expected. What ever happened to the book Dow 40,000?
Nick Murray responded to a query regarding the period 1966 to 1982 when the Dow went nowhere. There was a concern that we might be in for a similar period.
"Yes, from 1966 to 1982, the Dow "went nowhere." (But it paid wonderful, growing dividends, so the total compound annual return was actually about 5%.) And from 1950-1999--roughly 16 years on either side of those sideways 16 years, all taken, as a whole-it (the Dow) went from 200 to 10,000…still not counting dividends. The issue is one's perspective."
While we cannot forecast the market, we can deal with probabilities and not possibilities. It seems probable that the market will stop going down. It also seems possible that equities will continue to provide the best compound return of all other investments. It also seems that the long-term future will be better than the long-term past.
Then there are the clients who want to move out of equities and into bonds. Certainly the one constant about bonds on the positive side is that they have less volatility than stocks. Another constant, thought not positive, is that bonds have muchof a less return than stocks. If you put your assets into bonds, you will not keep up with inflation, and not be diversified.
"In late 1975," according to Mr. Murray, " a first class postage stamp cost 10 cents and the 10-year Treasury yielded 7.8%. Today, the stamp costs 37 cents and the 10-year Treasury yields 4.8%…taxable. Regardless of how much lower the equity market has to go, does anyone really believe you are safer in bonds?"
I believe that this could be one of the best times in history to invest in stocks. The market is having a sale and when things go on sale it is usually a bargain. That does not mean that the sale might not get better. It does mean that at sometime in the future the sale will end; you will have purchased those items cheaper than most people.
I also know that it is impossible to achieve the long-term goals that you have without having a portion of your assets invested in equities.
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