MAKING SENSE OF THE MARKETS

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The media currently love to talk about how we might be headed into another depression, it's a terrible time to invest, and that current events are going to unfold as they did in the 1930s. I wanted to address this briefly.

What we've heard?

The "dirty thirties" were a terrible time to be invested in the stock market because there was a depression going on. Let's examine this claim

The background and the facts--

The Depression was triggered in part by the collapse of the stock market from 1929 - 1931. The performance of the New York stock market at that time--as measured by the S&P 500-- looked like this:

1929....-10%.....[this has been rounded so read it as a drop of less than 10%: i.e. 0 to -10%]
1930....-30........[-20% to -30%]
1931....-50

Needless to say, this drop was a severe blow to investors and gives one pause to think of how it could have happened. It makes for a fascinating story but let me give you a brief summary: there were two major things at play.

1. The stock market in the 1920s was influenced, literally, by a handful of wealthy families. As a group, they met over cigars to engage in stock market manipulation on a grand scale and, sadly, no one stopped them. They helped push stock market prices to irrational levels to feed their greed.

2. The small investors in the stock market routinely invested--it's hard to believe now--ten dollars where nine of those were borrowed!

So you can see that the stock market then was a house of cards. And when the cards fell, not only were investors faced with large losses, the small investors were left with large debt.

What is interesting, for the purpose of this newsletter, is the part you don't hear about now, namely, what happened to the stock market in the aftermath? Here are the numbers--

1932....+20%
1933....+60
1934....-10
1935....+50
1936....+40
1937....-40
1938....+40
1939....-10
sum...+150%

Conclusion--even the worst bear market was followed by a strong bull market. And there is an historic correlation: the worse the bear market, the stronger the bull market that follows.

My recommendations--

1. Bear markets are to be tolerated. Be patient, hold on to your stocks, the bull market is coming.
2. Investors who have the courage to buy in a bear market, when no one wants to buy, have been very well rewarded.

To repeat what I've said in previous newsletters, I don't know when the next bull market will begin. But for people who are invested--or who now buy more--and then are patient, the timing won't matter. And waiting for the end of the bear market before investing is like waiting for the wind to change direction.

Cheers!

Tom

Tom Buck M. Ed CFP
Assante Financial
403-229-0128


PS--one of the most interesting documentaries I have every watched is shown periodically on PBS as part of the series, "American Experience." The show is titled The Crash of 1929. It can be watched online at--

http://www.pbs.org/wgbh/amex/crash/program/index.html