Eleanor Roosevelt’s quote is on our new website: “Learn from the mistakes of others: you can’t live long enough to make them all yourself.”
Capelli Financial Services, Inc. is a descendant of the financial planning firm Marilyn started in Hinsdale Illinois in the early 1980s. In August 1982, the Dow Industrial average was under 780 (after having flirted with 1000 for the first time sixteen years earlier in January 1966). Everyone hated the stock market. Research done at the business library that summer (there was no internet, of course) mistakenly projected more years of dismal stock market values.
As it turned out, stock prices began climbing as autumn approached and they never looked back. Seventeen years later, when the century closed, the Dow stood at 11,500.
We are now twelve years into another sequence of poor stock market results, with the Dow 500 points below where it was at the end of 1999. Billions of dollars have been withdrawn from equity funds and billions of dollars have gone into treasury securities – even though the yield is at historic lows. Everyone is nervous; and there is widespread malaise about the future. The message in the media – on TV, radio, the internet and in print – is heavily pessimistic.
Here are some things to consider:
- We human beings love stocks when values have climbed and want nothing to do with them when prices have fallen. In other words, we mistakenly pile in when risk is highest and flee when risk is lowest. There is less risk today, nearly twelve years into poor returns, than there was at the end of the 1990s (when investors couldn’t buy tech stocks fast enough). We are wired to buy high and sell low.
- In this century, with falling interest rates, bonds have provided consistently better returns than broad stock indices. Today the 10-year Treasury bond pays 1.9% interest and, if held to maturity, returns your principal. People are loading up. The dividend yield of the S&P 500 is over 2% and provides strong expectation of price appreciation over 10 years. But, our brains are pattern makers; and we mistakenly project our recent experience – “bonds are better” – out into the future.
- Major market bottoms, when they are reached, have less to do with financial issues than with panic. When we’re afraid, we tend to feel that we must do something. As Warren Buffet says, “The stock market remains an exceptionally efficient mechanism for the transfer of wealth from the impatient to the patient.
We understand how anxious and fear-inducing this poor market environment has been and may be for some time. It is absolutely normal for markets to languish and normal to be afraid. The last, long bear market ended in 1982 and those who stayed invested then or who had the nerve to commit new funds were richly rewarded.
History has shown that abandoning equities when the future looks darkest is a big mistake for investors with lifetime goals – and yet people do it over and over because fear is so powerful.
Yes, there is much uncertainty about Europe, our tax code, about health care reform, the deficit and more. But, at some point we will have solutions to and clarity about every one of these issues. People solve problems. The current crop of worries will eventually fade (to be replaced by others, of course).
It is a mistake to underestimate the awesome ingenuity and drive for improvement of human beings. Folks around the globe – now connected instantaneously by the internet – will continue to want new phones, new cars, healthier diets, access to medical breakthroughs, comfortable living conditions, more education and better lives for their children. The pace of discovery accelerates geometrically. In addition, the Wall Street Journal had a marvelous column September 24th on how the world today has unprecedented levels of peace and civility (despite what one might infer from the media), describing the positive impact of this situation on future development. Our great global companies have never been more productive or more awash in cash or been able to borrow at such low rates.
No one knows or can know where the bottom of this bearish market will be or when it will occur. It will end when we least expect it; and no one will recognize it for some time.
We view portfolios as a means to an end, as tools to empower you to achieve your life goals. Effective investing takes into account shorter term needs and long term objectives. Immediate needs must be covered with low volatility vehicles while longer goals may be met over years and even decades. We continually assess trends and prospects, making modest moves as appropriate to take advantage of opportunities or to mitigate risks. Long term decisions are based on analysis not emotion.
While we will all continue to make our share of mistakes, Eleanor was right. Applying the lessons learned from them is powerful.
Check out our new website at capellifs.com. Jason Close has been instrumental in working with our designers to create a site that is informative and easy to navigate. We welcome your feedback!
Congratulations to Steve Goodman, our Investment Director, who recently attained the Chartered Financial Analyst credential – a rigorous post graduate level portfolio management program. Steve also holds the Chartered Market Technician designation. Approximately 200 people nationwide hold both. Steve’s enjoying actually having some time to golf.
We so enjoyed our evening at the Detroit Zoo. The Butterfly Pavilion offered hidden delights as we searched the foliage for these remarkable creatures. And we again were impressed with the pictures you, our clients, submitted that expressed the idea of generations and family history – the true treasures of life. Please call if you have any comments or questions!
