With the one-day decline in the stock market on October 19, 1987, again, the world was coming to an end. Three months later it had totally recovered. Other crises occurred in 1982 (global credit crunch), 1989 (junk bond collapse), 1994 (bond market massacre), 1998 (Russian currency crisis), 2000 (Y2K), 2001 (tech bubble), 2008 (sub-prime loan crisis), and 2010 (foreign debt crisis), just to name a few. During the last thirty years, many Cassandras have regularly issued their dismal prognostications. Sometimes an event occurred that temporarily fulfilled their dire predictions. Yet, the economy and market always recovered. The world continues to turn and function. It can be very dangerous to follow the advice of doomsayers. If you had been out of the stock market the last 30 years, you would have paid a very high price. The S&P 500 closed at 122.55 on December 31, 1981. It’s now above 1300.
If we have learned anything about the stock market during the last thirty years, it is that the greatest risk doesn’t occur when fear is rampant. The most dangerous environment is exactly the opposite: when people are wildly optimistic and buying any investment in sight. Those are the times when risk is the greatest. The building of the tech bubble in 1998 and 1999 is a prime example of this infectious group mentality.
The challenge for investors is to step aside and develop the ability to view world events and market activity apart from the crowd of human sheep. Granted, this is easily said but very difficult to do. Remember that your feelings are most likely the same as everyone else’s. Unless you develop the skill of isolating your emotions from those of the vast majority, you will become a market timer who buys high and sells low – not a good strategy for making money.
The recent events in the Middle East and the earthquake in Japan may have triggered a “correction”
History has shown that human beings have remarkable resilience and an amazing ability to overcome catastrophe. People pull together and solve problems. The Chinese character for crisis contains two parts: one is danger, the other is opportunity. People deal very well with poverty and trials. What they can’t handle well is success and wealth. A patient, long-term view is the price investors must pay to profit from the stock market’s attractive returns.
At Net Worth Advisory Group, we believe that our clients should accumulate a reasonable supply of resources, including cash, to prepare for a disaster -- be it natural, man-made, or personal. But anyone who sincerely believes that capitalism is dead and that all human creativity and technological advances have come to an end should sell all his/her financial assets. Then go buy farmland, weapons, ammunition, gas masks, and all the other survivalist paraphernalia. Sit on the porch of your farmhouse in a rocking chair, shotgun cradled in your arms, and wait for the end. It may be a long time coming -- and that will take a lot of patience as well.
For more information, visit http://www.utahfinancialadvisor.blogspot.com.
About Mr. Jefferies
Lon Jefferies is an investment advisor representative with Net Worth Advisory Group, a fee-only financial planning firm in Salt Lake City, Utah. He is a member of the National Association of Personal Financial Advisors (NAPFA) and a candidate for CFP™ certification. He possesses an MBA and bachelor's degrees in Finance and Marketing from the University of Utah. Lon writes articles for local magazines such as Business Connect and Utah Business Magazine, and he consistently contributes articles to online magazines such as FIGuide.com and FILife.com (by The Wall Street Journal). Additionally, Lon is a platinum expert author at EzineArticles.com. Lon has been quoted nationally in publications such as the Wall Street Journal, the NY Times and Investment News.
View Lon's blog at http://www.utahfinancialadvisor.blogspot.com, and visit Net Worth Advisory Group's home page at http://networthadvice.com. Lon can be emailed at firstname.lastname@example.org, or phoned at (801) 566-0740.
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Fee-Only Financial Planner
Net Worth Advisory Group
6975 Union Park Center, Suite 465
Midvale, UT 84047