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Yes, the economy is bad, but it could be worse
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Published: January 15, 2009
How are you feeling about the current market conditions?
A few weeks ago, Rabbi Joel Levinson gave his first sermon to his new congregation. He shared what had happened to him in the last few years.
"I was previously married and divorced. I remarried and my wife and I had a son who died from complications at birth. In July, my father passed away," the rabbi said. But his message was "Gam Ze Yaavor," which means "this too shall pass."
In today's volatile stock market, this might be a good mantra for investors and a reminder that worse things can happen to us.
Make no mistake — the present financial crisis is enormous. To many American commentators, it is the direct consequence of decades-long financial incompetence and unbridled arrogance. At what point, they ask, did the fictional "greed is good" philosophy promoted by Gordon Gekko in the popular 1987 movie "Wall Street" become a reality?
Economists and politicians will contemplate this crisis for many years and each may arrive at different answers. But, what is almost certain, is that none will voice the simple truth that we are all culpable.
The idea that a handful of wicked individuals are responsible for the financial problems of an entire generation might be satisfying, but it is nonsense. Many people are responsible in some part for the financial chaos spiraling out of control around us. Many looked the other way when credit was offered to us at an almost unprecedented level, because accepting it suited our individual ambitions.
Likewise, many people got greedy with their investment behavior. Nick Murray, author of "The New Financial Advisor," cautions, "There is no consistent way of anticipating when an ordinary market correction will deepen into a genuine bear, nor when — having done so — the bear market will run its course." He cites one of the best money managers ever, Peter Lynch, who observed that more money has been lost by people trying to anticipate and avoid bear markets than in all bear markets themselves.
Murray says trying to time the market becomes the ultimate fool's errand: It is the formula for weak long-term returns.
Still, media loves those who correctly called the direction of the market this time — making them heroes. Bob Brinker's Marketimer investment letter was ranked by Timers Digest as the number one stock market timing investment letter for the 10-year period ending December 31, 2007. Hulbert Digest ranked Marketimer number one for model performance for the 10-year period ending August 31, 2008. Brinker was bullish in September. In October, although conceding this has been a very difficult market to analyze, the Marketimer Sentiment Index remained bullish with a rating of 136, which is well above the neutral level of 100.
He and many other highly respected professionals with decades of experience have been proven wrong. Does anybody really know?
We are currently struggling through the 13th bear market (which most financial experts define as a decline in the broad market of about 20 percent) since the end of World War II. Thirteen episodes in 63 years seem to imply that they occur on an average of about one in every five (although with lamentable irregularity). One had better get used to them since their beginnings and endings are impossible to time.
While the markets continue to be volatile, smart investors understand that we are now seeing some of the best investment opportunities in a long time. Many equities are selling at bargain prices.
So, when the days look darkest remember: This too shall pass.
Ted J. DeLisi is Investment Manager at Sovereign Investment Group in Troutman. Contact him at 704-508-4949 or www.sigwm.com.
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