Saturday, November 15, 2008

Is it over yet?

In last month’s commentary I wrote: “Nobody knows where the bottom is exactly, but this decline (in early to mid October) is now exhibiting the normal historical pattern of maximum fear. It is probably near the ultimate CAPITULATION point.” I warned however that the amount and duration of large hedge fund liquidations could change the normal pattern.

History teaches us that bear market bottoms are typically “retested” at some point. Usually this is 30-40 trading days after the first potential bottom. This 30-40 trading day period is not yet complete, but will be soon. I believe there are two major factors that may also affect the “normal” bear market behavior. The first is the change of government administration. The second is the almost unprecedented bad economic news coupled with unprecedented pessimism in near term future economic outlooks.

Bear markets do not end until investor psychology changes in regards to the future. They do end when investors believe that all aspects of the economic future are “priced in” and that even though bad economic news may continue—it is expected. And, most importantly, bear markets end when there is HOPE and expectation that the future will be better in the foreseeable future. Always remember that the price of a stock is the market’s guess as to the value of the stock’s FUTURE earnings—not just for the next year or two but many years into the future.

A study of historical stock market (S&P500) returns in the 1930’s disclose some very interesting facts. After a terrible three year decline from October, 1929 to the 1932 election, with a “transformational” Democrat replacing an unpopular Republican, the market declined 5% in November immediately after the election. But, from October 1932 through October 1933 it rose almost 34%. In the four years from October 1932 to October 1936, the market rose nearly 270%. Yes, it went UP 2.7 times over four years! This was in the midst of the Great Depression! (In that 1933 period when the market rose 34%, unemployment reached 25%. Although the U.S. economy began to recover in the second quarter of 1933, the recovery largely stalled for most of 1934 and 1935.) The point is that markets often rise, even when the present economic news is not very positive. Markets tend to ANTICIPATE the future.

In the short run markets are mostly affected by psychology. Maximum fear is almost always the bottom. Can fear get worse? It depends on whether economic news is worse or better than previously feared. (We have probably already seen the market's reaction to fears regarding possible tax policy changes by the new administration.) When fear is replaced with hope, markets change direction. Sooner than later investors determine that no matter how bad things may become in the near future—things will get better and good times will return!

No, it is not yet over. We will most likely see continued volatility. But, for your long term investments, it is probably not a good time to exit. And it may be an excellent time to add to positions in high quality equities and mutual funds.


This commentary and information is provided for the benefit of clients and should not be considered a sales presentation.

See http://www.waynestrout.com/ for more complete info: Investment advisory services are offered by WS Wealth Managers, Inc., an investment adviser registered with the SEC. Wayne Strout is an Investment Adviser Representative with WS Wealth Managers Inc. in addition to serving as President/CEO and Chief Compliance Officer of the firm. Scott Sebring is an Investment Adviser Representative and Vice President. WS Wealth Managers Inc. is not affiliated with Glen Eagle Advisors LLC or Pershing LLC. Wayne Strout and Scott Sebring, dba WS Wealth Managers. Securities offered thru Glen Eagle Advisors LLC, Member of FINRA And SIPC, with clearing thru Pershing LLC, Division of Bank of New York Mellon Corporation, also Member of FINRA and SIPC.

Wednesday, October 8, 2008

Shouldn’t we be doing something?

Human nature is almost always wrong when it comes to investing. Many times, the most value a Financial Advisor can provide to a client is to help them GO AGAINST their human nature.

Our nature tells us to avoid injury by taking action in response to pain. In investing that means we want to sell that investment that has caused us pain and worry by going down in value. Investing is all about selling after prices go up and buying after prices go down.

The S&P just closed at 996. That is down nearly 22% in the last thirty days. It is down 36% from 1565 since one year ago. It is usually unwise to sell after a 36% decline!

“But I just don’t want to lose ALL my money”. A well diversified portfolio of quality investments usually does better than the market. So let’s look at some really bad markets: 2000-2002= 40% down to 833; 1972-1974=43% down to 65.

The worst market in my lifetime was 1972-74 and we are now UP 15 times from that point! ($100,000 in 1974 invested in the S&P500 might have grown to $1,500,000!!) The "price paid" to earn $1,400,000 in 30 years was to "suffer" two storms with declines of more than 30%. (This ignores dividends. With dividends reinvested, some mutual funds like American Funds Income Fund of America grew much more over the 30 year period: $100,000 growing to over $4 million-see July Blog)

Nobody knows where the bottom is exactly, however, this decline is now exhibiting most of the signals consistent with the normal historical pattern of maximum fear. It is probably near the ultimate CAPITULATION point. After capitulation comes APATHY for awhile, until some event causes a change in sentiment and GREED starts replacing FEAR.

If there were no hedge funds, it is possible that CAPITULATION occurred on October 7, but hedge funds cause irregular and unpredictable behavior. The rich and foolish folks in hedge funds have suffered huge declines from GAMBLING and want out… and the volume is big—it may take awhile for the market to accommodate their exit. Market action on October 8 seems to confirm this.

My best advice is to think of what you are experiencing as a sea voyage. We are in the middle of the ocean and a big storm has come up-with big waves. We are not going to turn the ship around nor are we going to abandon ship in the middle of the storm—we wait till the storm is over, make the necessary course corrections and continue toward our destination of financial freedom.

If you are a client of this firm, your investments were designed to survive storms like this. Your captain and crew have “many years at sea” and unlike the Titanic, you have not been sailing at maximum speed at night. The storm will end and the sun will shine again—be patient, stay the course and look for opportunities.

Please review the August Blog that discusses the Panic of 1907:

Saturday, August 23, 2008

Mutual Funds-Corporate Farming

If investing should be like farming, what if we really don’t want to be farmers? What if we want to own the land but let somebody else do the farming and produce rising income for us?

Delegation to professionals with more experience, judgment and tools of the trade is almost always a wise decision. This of course assumes that the professionals charge a fair price, where the value they provide exceeds the cost of their services—and they are competent.

Owning and working a 1000 acre farm can be a good source of income. Owning and renting out a 1000 acre farm can provide a modest income. What if we want more income than we can get from renting, but we don’t want to work the farm ourselves? And, what if we want to diversify our holdings so all of our “land” is not in one place and so we can grow many more different types of crops?

When we buy shares in a mutual fund, we are buying an ownership interest in an investment company. We share in the income generated by that company. Using the farming analogy, we can buy shares in a “corporate farm” with vast “land” holdings in many geographical areas, with a diverse group of crops, providing the benefits of diversification. The benefits of a mutual fund are primarily: Professional Management; and Diversification.

The goals and general activities of the mutual fund are outlined in a prospectus. Never invest in a mutual fund without reading the prospectus and gaining a complete understanding of the fund’s goals, activities, management, costs, financials and track record. (Have a professional assist you.)

Because the mutual fund has professional management and more resources, it can often add another dimension to your investment activities. Here, ongoing income from Capital Appreciation is perhaps possible by buying “land” when it is cheap, and selling it later when prices for it have risen. In other words, the management is not only engaged in the business of farming and producing income; they are engaged in a professionally managed form of “land speculation”. Unfortunately, many of these professional managers have no better idea of how to make money buying and selling land than the average Joe or their fees are so high that any value they add is more than offset by the costs.

So, how do you choose?

Our firm believes the right choices are finding mutual funds with competent management, with the right philosophy, that spend their time on truly value adding activities, and that keep their costs low. We define competent management as having sufficient experience to have learned the lessons of the past; that understand following the crowd is usually unwise. We define the right philosophy as a focus on managing risk: capturing “less of the downside” and “more of the upside” but not necessarily all of the upside in fluctuating markets. (You would be surprised how many mutual fund managers think doing a good job is simply following the market-up AND down!) The right philosophy also includes an understanding that it may take years for the wisdom of their decisions to show. Finally, there is only one way to gain an advantage in buying and selling property—real “in person” inspections of the property. The same type of in person inspections you would undertake yourself. There are remarkably few mutual funds that meet our firm’s criteria for being the “right choice”.

With professional management and the potential for the added dimension of “harvesting” long term gains from Capital Appreciation, a professionally managed, highly diversified portfolio can produce a relatively stable long term source of rising income. In many cases this rising income can be more predictable.

This commentary and information is provided for the benefit of clients and should not be considered a sales presentation.


See http://www.waynestrout.com/ for more complete info: Investment advisory services are offered by WS Wealth Managers, Inc., an investment adviser registered with the SEC. Wayne Strout is an Investment Adviser Representative with WS Wealth Managers Inc. in addition to serving as President/CEO and Chief Compliance Officer of the firm. Scott Sebring is an Investment Adviser Representative and Vice President. WS Wealth Managers Inc. is not affiliated with Glen Eagle Advisors LLC or Pershing LLC. Wayne Strout and Scott Sebring, dba WS Wealth Managers. Securities offered thru Glen Eagle Advisors LLC, Member of FINRA And SIPC, with clearing thru Pershing LLC, Division of Bank of New York Mellon Corporation, also Member of FINRA and SIPC.

The Goal-Think Like a Farmer

“Everything should be made as simple as possible, but not simpler.”- Albert Einstein

Whether the client intends to take income (now or later) or to build a legacy to be gifted to others, we assert that the universal goal of investing is to create a present or future source of rising income. Rising income is defined as income that grows at a rate that exceeds inflation. Sometimes that income is spent, sometimes it is reinvested. When past or present income is spent, the investment portfolio is deemed to be in the “Distribution” phase. When new funds are being added or income is reinvested, the investment portfolio is deemed to be in the “Accumulation” phase. There are only three sources of income from investments: A) Interest; B) Dividends; and/or C) Capital Appreciation.

We believe that a simple way to illustrate this concept is to use the analogy of investing compared to farming. A farmer can take income in three ways: A) Renting the land; B) Growing and selling harvested crops or mature livestock; and/or C) Selling off parts of the land. Rent is like interest. Dividends are like the income from growing and selling harvested crops or mature livestock. Capital Appreciation is like income from selling off parts of the land that have become more valuable.

Unfortunately, too many so called “investors” believe that investing is all about Capital Appreciation. Coming from a family with a long farming tradition, we can say that most farmers and growers do not calculate the value of their farmland on a daily or monthly basis. And, few even think about selling it off. Farmers understand that the source of their wealth is the land, but that the value of the land is determined primarily by the income derived by growing and selling harvested crops. We like to think of the client’s investment portfolio as the “land” and dividends and interest as the “harvest”. If we don’t need the income from the “harvest”, we buy more “land” by “reinvesting” the dividends and interest (Accumulation). If we need the income, we take money from the “harvest” and spend it on ourselves (Distribution).

We tell our clients that the value of their investments is determined primarily by the income generated now or likely to be generated in the future, from dividends and interest. We worry little about the daily market value of the “land” except when we are adding new money and “buying” more. If we learn that the value of “land” has increased, we have mixed feelings..we feel wealthier, but..if we are buying land, we will be able to buy less with our money.

We submit that the only time that Capital Appreciation is important is if we intend to sell, and the only time we would sell our “land” is if our income was insufficient for our needs. (Or maybe if we want to buy more “fertile” land that will produce more income.) The goal of investing, particularly for retirement is for our portfolio to produce income sufficient for our needs. This is investing as opposed to speculation.

While earning interest (renting the land to another farmer) is an important and relatively stable way to create income, unless the portfolio is very large and our income requirements are very small, dividends are generally the most important source of income. Owning stocks, in the farming analogy, is like the growing and selling harvested crops. Some stocks are like growing corn or milking dairy cattle, where the income comes right away, some stocks are more like planting orchards or trees, where income comes after a period of time.

Spend less energy worrying about the daily value of your investment portfolio and more about how much income it is producing or will be producing in the future.

This commentary and information is provided for the benefit of clients and should not be considered a sales presentation.

Saturday, August 16, 2008

Speculation vs. Investment

“Panics do not destroy capital; they merely reveal the extent to which it has been destroyed by its betrayal into hopelessly unproductive works.”- John Mills (1868)

A simple definition of speculation is that it is a process, a form of gambling driven by greed, where something is purchased primarily because that something’s price is expected to rise over time. Speculation is a process that feeds on itself, for a period of time, where buying something in limited supply, drives the price up for a period of time, creating demand for more buying, simply on the premise that the price will continue to rise. The most dangerous forms of speculation is where borrowed money is used in the process. Widespread and increasing use of borrowed money allows prices to rise in the short term at unsustainable rates.

Continued increases in prices require rising demand without a corresponding increase in supply. The greatest misperception is that demand and prices will rise indefinitely because supply is somehow permanently limited.

Some would argue that for “scarce” goods like real estate or oil with finite quantities available for supply, prices can rise at faster rates. This argument fails to consider the creative ability of humankind to create “competitive substitutes” and to become more “efficient”. When the price of something is perceived as “too high” then buyers begin to consider alternatives or become more efficient, and demand for the “scarce” good falls---and the rate of price increase slows. When the price of something becomes sufficiently high, new sources of supply of the “something or it’s substitute” are found and even with rising demand, prices fall.

Hence, successful speculation requires an ability to determine when to sell, before prices fall. Here is where fear enters into the process, because greed tells buyers to “stay in the game” while fear tells them to “get out while the getting is good”.

There are only two long term causes of sustainable increases in demand and aggregate wealth: increased population, and increased productivity of humankind allowing each person to consume more. Increased productivity requires capital, tools and free trade. Increased productivity requires investment, not speculation. In fact, speculation and investment are really in competition with one another.

Speculation does not increase wealth—it only transfers it. Speculation is seldom a productive use of time or any other resource and repeated speculation usually results in losses that offset the gains. Our firm believes the process of investing is the intelligent application of capital for the purpose of increasing humankind’s productivity over time. This increased productivity is in our opinion the most reliable way to increase wealth over time.

There will always be speculation—it is a part of human nature. But during periods when speculation has proven to be unprofitable for the majority of participants, it becomes relatively less popular. Our firm advises clients to seek out well managed companies that use capital wisely for the purpose of increasing the productivity of humankind. These are the investments that more reliably create wealth and value. During periods with “corrections” of past speculation, the price to buy these companies is particularly attractive. When speculation becomes less popular, true investing for long term results becomes even more rewarding.

This commentary and information is provided for the benefit of clients and should not be considered a sales presentation.

See http://www.waynestrout.com/ for more complete info
Investment advisory services by WS Wealth Managers Inc., a registered investment adviser.
Securities thru Glen Eagle Advisors, LLC, Member of FINRA and SIPC
Clearing thru Pershing LLC, Div of Bank of New York Mellon Corp.
WS Wealth Managers Inc., Glen Eagle Advisors LLC, and Pershing LLC are not affiliated.

Saturday, August 2, 2008

Uncertain Times Require Courage Wisdom and Patience

  • Unemployment rates go up. Dollar rises.
  • Oil prices down. Gold prices up.
  • Money supply and credit contracts. Inflation up.
  • 2nd Quarter 2008 GDP up. 4th Quarter 2007 GDP revised down into negative territory.

The stark truth is that nobody knows for sure what the near term future holds. This is why there is so much volatility in the markets. We are in a period where “frightened money” jumps in and out of markets and anxiety rules.

Uncertain times bring to mind a quote from John F Kennedy: “The Chinese use two brush strokes to write the word CRISIS. One brush stroke stands for danger; the other for opportunity. In a crisis, be aware of the danger – but recognize the opportunity.”

From my experience, the biggest error that can be made is trying to predict the future by looking backwards. It is sort of like driving by looking out the rear view mirror instead of the windshield. Always remember, there is a BIG DIFFERENCE between predicting the short term future from recent past events and preparing for the future by studying history and what it teaches us. Being prepared is how money is made, not by making predictions. Markets move because of what is NOT KNOWN.

J. P. Morgan, the famous financier, and one of the richest men in the US, was once asked what he thought the markets were going to do. His answer was “The markets will fluctuate!” We can learn from history by looking back on periods when necessary corrections always follow the inevitable periods of human excess. Go back to the Panic of 1907…Speculation in the 1900’s was rampant. Trusts Companies then, like the Investment Banks and Hedge Funds now had fueled this speculation. There was a run on a major financial institution, followed by a bailout. The markets slid downward as anxiety continued. The Dow Jones Average fell from 86 to 53 over 8 months (March thru November). The total return for US Equities in 1907 is estimated to have been a negative 30%. The total return for US Equities the following year was UP 44% with another UP 18% in 1909.

(Keep in mind that 1907 was the year before the 1908 election. During the election year of 1908, the market was up considerably—more than 40%. Markets are usually up during election years. There is still another 5 months to go in 2008!)

Why study a period more than 100 years ago? Things are different—right? Our firm believes that markets in the short term are driven more by human nature than by facts. Markets always overreact. Greed and Fear—the two Enemies of investing (or Allies if you use them to your advantage) have not changed much and there is much to learn from history.

A “buy and hold” investor owning the “index” would have achieved a theoretical average return of 6.5% over the three year period 1907-1909. An investor with courage and patience, buying in August of 1907 would have achieved an average annualized return of over 10% owning the “index” thru the end of 1909. (The ride would have required a great deal of courage indeed. The DOW fell more than 30% from August thru November of 1907!) It would take another 18 years before the market index doubled, providing an average annualized return of only 4% during that period. Above average returns from investing required careful stock picking, a preference for stock where dividends added to the total return, and careful selection of interest paying bonds.

The point here is that buying the “index” and “passive investing” may not be the most prudent investment strategy going forward. Periods of speculation are generally times when it is easy to make money—follow the crowd and put it on auto-pilot. Perhaps a strategy with more focus on value and income will be the best strategy going forward. Corrections and the years following periods of speculation are times when it is harder to make money and it is usually wise to go the exact opposite direction of the crowd. Using a trained professional is also advisable.

Focusing on value and rising income is a good strategy ALL OF THE TIME. It takes work, and it is usually easier if you rely on the assistance of professionals. Being a growth oriented value investor takes courage, wisdom, and patience.

Nobody knows whether the market is going to go up or down in the near term. What is more important is: Overcoming fear, buying good quality investments at favorable prices and holding them, having patience, until they substantially increase in value has proven to be a winning strategy. (Be sure to keep some cash on hand and/or income producing investments as needed to hold you over during the rough times.)

See http://www.waynestrout.com/ for more complete info: Investment advisory services are offered by WS Wealth Managers, Inc., an investment adviser registered with the SEC. Wayne Strout is an Investment Adviser Representative with WS Wealth Managers Inc. in addition to serving as President/CEO and Chief Compliance Officer of the firm. Scott Sebring is an Investment Adviser Representative and Vice President. WS Wealth Managers Inc. is not affiliated with Glen Eagle Advisors LLC or Pershing LLC. Wayne Strout and Scott Sebring, dba WS Wealth Managers. Securities offered thru Glen Eagle Advisors LLC, Member of FINRA And SIPC, with clearing thru Pershing LLC, Division of Bank of New York Mellon Corporation, also Member of FINRA and SIPC.

Wednesday, July 9, 2008

Making Money Even if the Market does not Go Up.

Nobody knows for sure which way this market is headed in the short run. My firm’s motto is “Being prepared is more important than making predictions”. We cannot predict market movements with certainty, but we can assess or estimate probabilities-that is part of being prepared. But it must be remembered that an 80% probability of something happening is still 20% from being certain.

In my previous blog, I mentioned that it looks like we might already be in a period that is similar to the 1970’s. Casual conversations with friends or family and business conversations with clients invariably displays a level of pessimism and fear not seen since Jimmy Carter was President. Fear of inflation, fear of losing a job or business losses, fear of general economic decline.

Inflation is obviously present in the price of petroleum, commodities, and food. So, what’s the cause? Extraordinary global economic growth is the reason. Developing economies are experiencing “demand pull” inflation with rising wages. Developed economies are experiencing “cost push” inflation which is restraining wages. Demand pull inflation tends to feed on itself, generating more inflation and a boom/bust cycle. (The recent home price bubble in the US is an example.) Cost push inflation tends to result in an economic correction and a general pessimistic feeling--that of "being out of control". (Having to pay more for our corn flakes because the farmer is now getting $7 a bushel for his corn instead of $3.)

Oil and commodities are priced high because of strong demand. According to Fed President. Janet Yellen, since 2000, world demand for oil has increased by 11 million barrels a day (14%) without a corresponding increase in supply. And commodities that are not traded by speculators are up as much or more than oil that is traded by speculators. We have a classic demand pull inflation going on. Probability is high that such booms are followed by busts. I personally think that commodities and oil can continue rising, but the probability is better than 50% that we are very near the top. Be careful not to jump on the bandwagon just before it falls of a cliff.

Although we like to think of real estate as an investment, for the vast majority of people, real estate is a cost. As the price of real estate declines, it creates deflationary effects. Housing is in the process of becoming more affordable. While the price of gasoline and food rises, the demand for most everything else declines. This also can cause deflation. While the price of fuel may cause producers to want to raise prices, there has to be demand or nothing gets sold. Money supply growth drives inflation and a decline in the money supply creates deflation. The credit correction we are experiencing is causing huge pressures toward a reduction in the money supply--offset (maybe only in part) by aggressive moves by the Fed. The probability is high that risks of deflation are almost the same as inflation.

Inflation produces winners and losers. You may not like paying higher prices for food, but even though few admit it, farmers are experiencing better results than they have seen in decades. While this is a difficult market for home-builders, there is still demand for housing and apartment owners are doing pretty well. This is the point of the mantra—“You must own a diversified investment portfolio”.

So as Franklin Roosevelt said, “We have nothing to fear but fear itself”. And, my view is that markets are more affected by fear of the unknown than fear of any known event or trend. Although we never really know the future with certainty, we feel better when we think we do! In periods of fear, be "courageously cautious" and seek out bargains that will be the source of out-sized future returns.


It is highly probable that markets are closely correlated with corporate profits. And corporate profits have been declining since the 2nd qtr of 2007. It is highly probable that corporate profits may continue to decline or remain flat for quite some time. So, our investment portfolios should be adjusted to focus on diversified sources of rising income. These sources are companies that have corporate profits that are predictable and relatively stable.

There are three sources of investment income: interest, dividends, and capital appreciation. Most likely interest and dividend income will be relatively more important in the near term than they were in the boom periods of the 1980’s and 1990’s. Choosing companies that generate real income and reinvesting that income will produce rising income over time. Choosing the correct mix of dividend and interest income will depend on each individual’s circumstances. More “certain” income from fixed income investments is generally recommended if you are taking income from your portfolio. This has become relatively more important. And, given the deflationary pressures discussed above, a laddered portfolio of fixed income investments will probably approach historical norms for total returns.

So, is the market going up or down? History teaches that it is probably going up in the long run. And we believe that the current market is likely to move up as we approach the end of summer. (60-80% probable) However, given political risks associated with the elections (because of changes in tax policy) and the chance that we are near the end of a boom period in developing countries, we are advising a slight reduction in international exposure and more emphasis on stocks that pay attractive dividends. Look for opportunity where prices have fallen and dividends are higher yields than historical averages-and where the dividend would still be attractive even if cut by 30-40% in the short run.

Take a look at companies like FR, DRE, FPL, IBDRY and BMY. (Not a recommendation—suitability is determined by many factors and a decision to buy or sell should not be made until having first consulted with a qualified financial advisor who will help assess your current situation and risk tolerance.) Companies that provide necessities and where the “trend is your friend” are the stocks you want to own going into the near future. BMY is in health care and will benefit from the aging population—even with more government controls on costs. FR and DRE are REIT’s that benefit from the trend of growing world trade. FPL and IBDRY are electric utilities that are leaders in alternative energy from wind. Avoid speculative positions and holdings--the chance of being disappointed is very high.

By carefully selecting the correct assets and allocation, you can make money, even if the markets do not go up.

Note: Strout and/or Strout's family have positions in FR, DRE, IBDRY and BMY.

See http://www.waynestrout.com/ for more complete info: Investment advisory services are offered by WS Wealth Managers, Inc., an investment adviser registered with the SEC. Wayne Strout is an Investment Adviser Representative with WS Wealth Managers Inc. in addition to serving as President/CEO and Chief Compliance Officer of the firm. Scott Sebring is an Investment Adviser Representative and Vice President. WS Wealth Managers Inc. is not affiliated with Glen Eagle Advisors LLC or Pershing LLC. Wayne Strout and Scott Sebring, dba WS Wealth Managers. Securities offered thru Glen Eagle Advisors LLC, Member of FINRA And SIPC, with clearing thru Pershing LLC, Division of Bank of New York Mellon Corporation, also Member of FINRA and SIPC.






Tuesday, July 1, 2008

Stay the Course and Look for Opportunity

  • It is easy to be an "investor" when your account continuously increases on a regular monthly and quarterly basis. Obviously, being an "investor" from October 2007 to now is not quite so pleasant. June was "scary" for almost everybody.
  • I like to say that the price you pay for long term growth in your portfolio is having to experience these downturns. Sometimes they last for months...sometimes for years.
  • Warren Buffet has supposedly stated "Occasional outbreaks of ...fear and greed, will forever occur in the investment community. The timing of these epidemics is equally unpredictable, both in duration and degree. Therefore we never try to anticipate the arrival or departure of either. We simply attempt to be fearful when others are greedy and greedy when others are fearful." The VIX still below its highs notwithstanding, there is a lot of fear out there. For those that have cash on the sidelines, clearly it is near the time to become greedy! (Keep in mind that every day we have the chance to buy, sell or hold. Staying the course is essentially the same as buying your existing portfolio.)
  • In any case, this is not the time to be liquidating and probably not even the time to be sitting on the sidelines except...Be sure you have enough cash and income to "ride out the storm" without selling good investments at the wrong time. Enough in today's environment is enough for the next 3-5 years.
  • If we are to learn from history, it is probably useful to revisit the early 1970's. (A serious oil "price shock" occured then, like we are now having. Except then, we had to wait in lines to get gasoline. This was when the 55 mph speed limit was imposed.) Serious long term investors, even buying at the peak before the downturn were rewarded for staying the course and owning good quality investments. But, the duration of the "storm" starting in January 1973 was three years. The S&P500 fell from 119 in January to 97 in November 1973 and then to 64 in September 1974, rising back to around 100 in January 1976. By January 1983, ten years from the previous peak, the S&P500 had risen to 145.
  • A good quality investment, here defined for discussion purposes as American Funds Income Fund of America, a mix of dividend paying stocks and good quality bonds (AMECX) turned in a better performance: $100,000 (Net Asset Value) on November 30, 1973 weathered the two to three year storm, falling to $94,000 at the end of 1974 and rising above $100,000 in 1975. By January 1983, after all dividends were reinvested for the ten year period, the $100,000 had grown to around $322,000. (According to American Funds Hypothetical-do not invest before reading the prospectus, reviewing all required disclosures, and meeting with a qualifed Financial Advisor. Be sure that your risk tolerance and complete financial situation is reviewed to determine that any investment is suitable for you.)
  • Another possible good quality investment (here again defined for discussion purposes) would be American Funds American Mutual Fund, a diversified stock mutual fund. (AMRMX) A purchase of $100,000 at near the peak of the market around the begining of January 1973, after the 3.5% sales charge leaving $96,500, fell to $72,000 by the end of 1974. The investment, with dividends reinvested rose to $322,000 by January 1983. (Again according to American Funds Hypothetical-do not invest before reading the prospectus, reviewing all required disclosures, and meeting with a qualified Financial Advisor. Be sure your risk tolerance and complete financial situation is reviewed to determine that any investment is suitable for you.)
  • The index fell 34%, and gained a total of 49% in ten years. (97 to 64 to 145) AMRMX and AMECX fell less, and gained 322% in 10 years. (AMRMX: 100 to 72 to 322- Jan '73 to Jan '83 and AMECX: 100 to 94 to 322- Nov '73 to Jan '83). Keep in mind, history and past performance do not predict the future. This is not a recommendation of AMRMX or AMECX. It is an illustration (for discussion purposes) of how money can be made, even if the stock market does not go up very much by investing in good quality investments with the help of professional management.
  • Experienced investors are only fearful when markets are too high and when everybody seems greedy. Experienced investors see market drops, dips, corrections and bear markets as opportunities.
  • When you are in the middle of a downdraft, like now, there will be no shortage of "Doom and Gloom" and claims or fears that "This time it's different". The 1970's were scary. 1987 was scary. 2002 was scary. Yet, the markets recovered in each case.
  • In closing, investing is not about what happens in 1 year or 3 years. Investing is more about what happens over 10 years. Be sure you have cash and/or income so that you can Stay the Course and Look for Opportunity.

See http://www.waynestrout.com/ for more complete info: Investment advisory services are offered by WS Wealth Managers, Inc., an investment adviser registered with the SEC. Wayne Strout is an Investment Adviser Representative with WS Wealth Managers Inc. in addition to serving as President/CEO and Chief Compliance Officer of the firm. Scott Sebring is an Investment Adviser Representative and Vice President. WS Wealth Managers Inc. is not affiliated with Glen Eagle Advisors LLC or Pershing LLC. Wayne Strout and Scott Sebring, dba WS Wealth Managers. Securities offered thru Glen Eagle Advisors LLC, Member of FINRA And SIPC, with clearing thru Pershing LLC, Division of Bank of New York Mellon Corporation, also Member of FINRA and SIPC.