The Great Depression Online




Great Depression Online Archive Issue:

Learning To Fall

Great Depression Online
Long Beach, CA
September 05, 2008

Inside This Issue You Will Discover…

*** The Early Days of Fall
*** The Lost Decade
*** Learning To Fall
*** And More

“There is a time for everything, and a season for every activity under heaven.” – Ecclesiastes, 3:1.

The Early Days of Fall

With the summer twilight slipping beyond the western Pacific horizon and the early autumn glow budding up from the eastern plain…we’ll pause a moment, in the still silence of dawn, to meditate on the early days of fall.

For it’s in the early days of fall where some days still feel like summer.  Similarly, it’s in the early days of a market fall where some days still feel like a market summer.  Here’s what we mean. 

An endless summer bull market run from October 3, 1974 to March 24, 2000 took the S&P500 from 62.28 to 1,527.46…a 24.5 fold increase.  Eternal sunshine and eternal profits – it seemed – would be granted to all creatures just for being ‘in the market.’

~~~~~~Is Your Bank Safe?~~~~~~

Elliott Wave International, the world’s largest market forecasting firm, has just released a free report, Discover the Top 100 Safest U.S. Banks.  This free report will show you: how to choose a safe bank, five incredibly risky banking conditions, how even the FDIC can’t really guarantee your money, tips on international safe banking, and more.  Discover everything you need to know right here: Top 100 Safest U.S. Banks.

~~~~~~~~~~~~~~~~~~~~~~~~~

And after such an agreeable stretch how could anyone of sound mind and sound conscience believe any different?  For hadn’t they born witness to the prosperity of their neighbors?

The Lost Decade

“Markets make opinions,” the old timers say.  But after such a pleasant bull market run opinions have been stubborn to change.

After topping our in early 2000, the S&P500 crashed 49% to 776.76 on October 9, 2002.  It then advanced until October 9, 2007, where it peaked at 1565.15.

Yesterday the S&P500 closed at 1,236.83…290.63 points below the year 2000 high.

If the S&P500 doesn’t rally 23.5% over the next 18 months, buy and hold investors will be looking at a lost decade of negative returns.

Yet it may turn out that this lost decade was merely friendly training for investors.

Learning To Fall

For a decade of negative returns is not without precedent.

In fact, that’s exactly what happened between the last quarter of 1964 where the S&P500 traded at 84.75 and the last quarter of 1974 where the S&P500 traded at 63.54.  Over that ten year period buy and hold investors lost 25%.  And before it was over everyone knew that stocks were a horrible investment…a sure way to lose money.

Could we really be in for further stock market losses?

We don’t know.  But we believe the fundamental risks to investing in the stock market outweigh the rewards.  In other words, over the next several years, return of principal, we believe, will be more important than return on principal.

Looking back at the last 8 ½ years, we see several practical lessons for learning to fall. 

The first lesson is that stocks don’t always go up…they often go sideways for extended periods of time…and sometimes they even go down – a lot.

The second lesson is that during such periods, buy and hold investing can be disastrous to your portfolio.

The third lesson is that sitting on the sidelines can sometimes be the most shrewd investment strategy there is.  At a minimum it’ll preserve your dignity; anything more will preserve your capital.

And you’ll emerge from the long winter into the hope of spring with plenty of capital to buy equities on the cheap in preparation for the next glorious summer bull market run.

Sincerely,

M.N. Gordon
Great Depression Online

P.S.  It seems a bank fails about every other week these days.  Most recently with Integrity Bancshares Inc. which went belly up over the Labor Day weekend.  And you can bet many more will follow before the credit crisis is resolved.  Discover the Top 100 Safest U.S. Banks in this free report from our friends at EWI: Top 100 Safest U.S. Banks.

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