Is It Different This Time? Part 2

“There are no guarantees, but throughout our history investors have been rewarded for long-term investing in stocks, for staying the course through short-term noise, and for being prudently diversified.” – Joni Clark.

Today the S&P 500 fell almost 4%, after being down twice that amount.  The Fear Factor is here big time.  No one knows whether stocks will fall further or will move higher in the next few months.  I believe a long-term approach is the only strategy that works and that some historical perspective is needed now.

Note that the October 13th Time magazine continues a long tradition of scary headlines and covers.  Dramatic covers sell magazines. But the media do us no favors by trying to scare us into selling and encouraging us to wait on the sidelines until economic conditions look better.   There is evidence that it always looks bleak in the middle of a financial crisis.  However, in the past, selling at that time has been a big mistake.

This article comes via Charles L. Stanley’s blog.

Breaking News: It’s Not Different This Time by Joni Clark, Chief Investment Strategist of Loring Ward, is food for thought and provides some needed historical perspective. To underscore her position, Clark cleverly displays old Time magazine covers and briefly discusses the respective article context. With the benefit of 20/20 hindsight, she shows how we survived all of the previous crises.

Here is my favorite quote:

“In an age of economic anxiety, real and rising concerns about whether free enterprise can surmount the problems of inflation, energy and productivity. The relentless daily pounding of dismal news drives deeper the public’s conviction that the economy is in a profound and morose crisis.”

Does that sound familiar to you? Well, the quote is from Time magazine’s article Capitalism: Is It Working? The cover story for April 21, 1980.

The more things change, the more they stay the same.

In a supreme understatement, Clark says, “The headlines have not been good this year.”  Well, neither were they good in the past.

But, Clark observes:

“If you’d had the courage and conviction back in the early 70s to ignore Watergate, the oil crisis, Vietnam and inflation and invested $100,000 in the S&P 500…and then if you’d taken a long-term perspective and not worried too much about the S&L crisis, the 1987 “panic,” the tech bubble and all the other speed bumps along the way, you’d now have more than $3,800,000.”

Her conclusion is the one I quote at the top of this post. It is my strong belief, as well.

Is It Different This Time? Part 1

“We cannot assume that even if the economic news gets worse that prices will decline further. It’s quite possible that prices are already reflecting investor concerns of more trouble ahead and may rise despite more gloomy business reports in days and months to come.” – Weston J. Wellington.

Scary Headlines

Lately, it seems that all we have been reading and hearing about are falling real estate values, failing national banks, global brokerage firms in dire straits, and stock prices plummeting in markets all over the world. This is no fun, no fun at all. Surely, we are in big trouble. You may believe that our current financial problems are “unprecedented.” For a different view, though, read on.

Needed Perspective

Dimensional Funds Advisors Vice President, Weston J. Wellington, offers perspective on how the current market downturn compares to past bear markets. His short, 17-minute presentation Is It Different This Time?  shows how resilient markets have really been.

Video highlights include brief discussions of past articles from Time, Newsweek, Fortune, and Business Week, which shows how past crises and bear markets were covered. What is surprising is how often the word “unprecedented” gets used.

photo credit: sorian

Shouting “Fire!” in the Middle of a Conflagration

Amazing! Jon Friedman of MarketWatch believes the press has been too prudent in describing the financial meltdown. In his commentary, Media shouldn’t shy away from explosive language, he accuses journalists of “hedging their bets and falling back on imprecise, sugar-coated language.” Friedman would “prefer bluntness and brutal truth.” He wants to call a meltdown a meltdown. “Bloodbath” would be even better, in his opinion.

You can call me a cockeyed optimist, but all I want to know is where has this guy been all this time? The U.S. government is proposing a $700 BILLION bailout. A number of economists have been quoted as saying that this is “the worst financial crisis since the Great Depression.” Do we really need stronger adjectives to describe the financial meltdown more clearly? I don’t think so.

I’ve been saving the front page of The Wall Street Journal all this week, I guess for posterity. Almost every day there have been large font headlines which have included the words Crisis and Failure. Depending on Congress, we may see Panic added to that any day now.

Aside from the headlines, the stories have made reference to “credit freezing,” “backstopping Money Market Mutual funds,” and “banks being afraid to lend to each other.” Do journalists really need to dramatize these events more? Once again, the answer is no.

We’ve had several large financial institutions disappearing over the last couple of months. Companies that are being bought under pressure, going bankrupt, taken over, or “saved” by the U.S. government include: AIG, Bear Stearns, Fannie Mae, Freddie Mac, Lehman Brothers and now, Washington Mutual. Have I left any out? Well I guess you could include Merrill Lynch on the “sick but saved” list, just without the help of the federal government.

Just today, CNN.com had an article assuring us that there would NOT be another Great Depression. Even six weeks ago, who would have imagined that such reassurances would be necessary?

So PLEEZE, don’t talk to me about the press being too “prudent and proper.”

photo credit: megananne