As an investment advisor, I sense things are getting really bad out there,
maybe even approaching market bottoms, or so-called “capitulation”
when long-time clients who have never been bothered by the vagaries of the
equity markets begin calling me looking for “good news.”
How about you? How are you handling the extreme market volatility we are
experiencing? Are you beginning to believe that fear and doom and gloom are
justified or that we are approaching, what I heard one TV reporter say,
“The end of the world as we know it?” If so, you are not alone.
Kenneth W. Rudzinski
But maybe this is what it feels like to buy low.
Suppose last July you and I were discussing the 5-year bull market, and in
the course of our discussion we verbally espoused that old fundamental truth:
“Buy low, sell high.” We would have agreed instantly, and with barely
an afterthought rambled along on other investment matters.
Now, let us have that same conversation today when you may be at the point
of bailing out of your equity positions (or you have already bailed), down
45.8% since Oct. 9, 2007 (according to BTN Research), and dropping further.
Maybe you are even thinking about stopping your 401(k) or 403(b) payroll
contributions to “wait until things clear up.” Yes, you tell
yourself, “It is different this time, not even close to the prior nine
recessions we have had since 1957.”
“Buy low, sell high.” Let me ask: If that was unabashedly true
last July, why is it not even truer today? Last year, we were not confronted
with the highly emotional roller coaster we find ourselves on today — that
is why. Oh, yes, this time it is different — no recovery in sight. We had
no doom-and-gloom ball and chain last year, but we do now.
Let me suggest to you that the “low” is staring us in the face. It
is maybe not the lowest of the low but more likely closer to the bottom than to
the top. The S&P 500 Index has plunged more than 45% from its high last
Oct. 9, according to BTN Research. Could it go lower? Yes, of course, and maybe
it will, but I contend that “this is what it feels like to buy low.”
Warren Buffett said it right when he warned, “Be fearful when others
are greedy, but be greedy when others are fearful.” I say, “The only
people who get hurt on roller coasters are the jumpers.” But look at those
headlines. The “experts” are saying things like:
- “Can your bank stay afloat?” — U.S. News, Nov.
- “Uncertainty rains for the U.S. economy” — Wall Street
Journal, Dec. 3
- “How the real estate crash threatens financial institutions”
— U.S. News, Dec. 16
- “The real estate bust” — Newsweek, Oct. 1
- “Housing recession that began in the Northeast three years ago now
engulfs entire nation” — New York Times, Dec. 16
But it is different this time. Is it really? Granted, there are certainly
unique facts and circumstances to this market decline and recession that make
it appear different on the surface. But check this out. As I was researching
data for the chapter in my upcoming book for physicians, I reread Peter
Lynch’s book about the renowned Magellan Fund. In it, he itemizes some of
the more pessimistic headlines of 1990, five of which I cited above. Yes, 1990.
Back then it was the S&L crisis when banks closed by the hundreds, the
First Gulf War had no guarantee of success, the country mired in seemingly
endless recession and the equity markets were roiled by all of the uncertainty
we were facing. All of these were “different from anything else we had
ever experienced before,” it appeared. “We know markets recover in
time, but not now, because it’s different this time,” people said.
However, Lynch summed up what happened following the months of
doom-and-gloom media summarized by a headline in Barron’s: “Suspense
and dread cast a heavy pall over the markets.” To quote Lynch, “Of
course we now know the war wasn’t as terrible as some had expected …
and what we got from the stock market instead of a 33% drop was a 30% gain in
the S&P 500 average, a 25% gain in the Dow and a 60% gain in smaller
stocks. You would have missed it if you paid the slightest attention to our
Yes, it was just as different then as it is right now. My suggestion: turn
off Jim Cramer and take a ride in the country fueled by gasoline (predicted by
the experts to be $5 a gallon) that is now selling below $2 a gallon.
Send me an e-mail and I’ll send you a piece that will help you
understand the need to keep a long-term perspective in these volatile times.
For more information:
- Kenneth W. Rudzinski, CFP, CRCP, CLU, ChFC, CASL, CAP, is a Registered
Representative of the Lincoln Financial Advisors Corp., a Broker/Dealer (Member
SIPC) and Registered Investment Advisor. Insurance is offered through Lincoln
affiliates and other fine companies. He can be reached via mail at 2036 Foulk
Rd. Suite 104, Wilmington, DE 19810, by telephone at (302) 529-1320 or through
e-mail at Kenneth.email@example.com.
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