Monday, September 29, 2008

Some thoughts on this current market turmoil.

This is part of the letter I got today from my finacial adviser.

I thought I'd share it because it is a reminder that things in the market are not as bleak as Dubya says they are. All he's doing is one last giant money grab.

Hi everyone,

In light of recent market conditions some of you may have some concerns about the state of the markets. Here is some information that might help to put things into perspective.

It may shock you but history does repeat itself...

Decade   Market Return World Events
1950’s 12.7% Korean War, US Seizes Steel Mills, Russia Explodes H-Bomb, Suez Crisis, Recession, Castro Takes over Cuba
1960’s 10.0% JFK Assassinated, Berlin Wall Erected, Cuban Missile Crisis, Vietnam War begins, Mao in China, Newark Race Riots, USS Pueblo Seized
1970’s 10.4% OPEC Crisis, Terrorists at Munich Olympics, Watergate, Largest US trade deficit to date, Steepest market drop in 4 decades, Tangshan Earthquake kills 240,000 people, American hostages in Iran.
1980’s 12.2% Interest Rates at all-time high, Worst recession in 40 years (Markets hit new highs following year), AIDS discovered, Black Monday (DOW drops 22.6% in one day)
1990’s 10.6% Y2K, Persian Gulf War, End of Cold War/Berlin Wall Fall, Oklahoma City Bombing, Global Recession, Asian Flu, Mad Cow Disease, Euro introduced
2000’s6.2% (as of Sep 15, 2008) Tech bubble burst, Largest market correction in Canada & US since the Great Depression, September 11th, Enron, World Com, Iraq / Afghanistan War, Credit Crunch, Income Trusts, Oil & Gold at record highs, Bear Sterns & Lehman Brothers collapse

Four things you need to keep in mind about Bear Markets

1. Bear Markets are an essential, immutable, constant element of the economic cycle. Human nature drives the economy, and the economy drives the stock markets. People tend to overshoot and then undershoot the long term growth trends of the economy. This type of behaviour leads to unpredictable returns in the market place which is precisely why markets earn high returns over the long term.

2. Bear Markets are as common as dirt. In the 63 years since the end of WW2 there have been 13 bear markets. These bear markets have averaged a decline of 29% and lasted on average 15 months. On the flip side, bull markets last on average 26 months and average +71%. I am very confident that the prices we see for common stocks in the market today are low and when the market takes off again, we will never see these prices again.

3. Bear Markets are a temporary interruption of a permanent uptrend. The advance is permanent over the long term and there is over 100 years of data to certify this.

4. Bear Markets are why equity returns are what they are. It is the volatility in the market place caused by investor behaviour which allows people to get wealthy over the long term.

Here's the info. for my financial guy. He's good, so he deserves some publicity:

Paul Lambe, CFP, FMA
Financial Consultant
Investors Group Financial Services Inc.
700-295 The West Mall, Etobicoke, ON M9C 4Z4
(T) 416-695-8600 ext. 261 (F) 416-695-4480 1-888-397-5795

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