Gilroy Today 2009 09 Fall | Page 21



Is the Sky Really Falling ?

Stock market declines are an inevitable part of investing but it ’ s the last thing we want to experience . During these turbulent times , it ’ s worth remembering that while we can never know with certainty when a decline will occur or how long it will last , how we react to stock market declines will play a crucial role in our long term investment success .

We have to ask ourselves if this time is different than declines we have seen in the past . The answer , of course , is yes , but does that really make a difference ? While past patterns may not repeat , history can still be a very useful guide in making decisions about the future .
We can learn four important lessons from past market declines :


Relatively speaking , market declines have been brief for long term investors . It took 16 years for the Index to return to its previous high after the crash of 1929 . In 2000 , it took the index almost 5 years to recover … in 1987 it took less than 23 months to recover … in 1990 it took less than 8 months .
The most important thing we can do during turbulent markets is stay on track . Many investors make decisions based on emotion rather than logic during times like this and they sell when they should be buying . At times like this it helps to have a qualified professional to talk to ; someone who can help us with investment strategies , income alternatives and the tax consequences of selling ; someone that can help us make informed decisions about our investments .
by Jeffrey M . Orth , ChFC , CASL Investment Advisor Representative




No one has ever been able to accurately predict the timing of a market decline . Only in hindsight are the experts able to say that the stock market was overvalued at a specific point in time and due for a decline .
Successfully timing the market during a decline is extremely difficult because it requires two near perfect actions – getting out at the right time , which is usually not that hard , and figuring out when to get back in , which is very difficult . The problem is that market trends are not straight lines but are likely to be jagged with bursts of false rallies and then declines on the way down and small corrections and gains on the way up .
There have been thirteen recessions since 1931 . It is important to understand that these economic cycles are necessary to purge excesses . This time it ’ s lending and housing . Each one of these recessions has presented investment opportunities for those with long term discipline .
Sir John Templeton said that “ the best time to buy is when the blood is running in the streets .” One of the most successful investors of our time , Warren Buffett just announced that he is investing $ 5 billion dollars in Goldman Sachs . As much as anyone , Warren recognizes when something is “ on sale ” and understands that troubling times create opportunities . Warren probably wouldn ’ t invest $ 5 billion dollars if he thought the sky was falling . So while many are running around like Chicken Little , convinced by what they have seen and heard , that the sky is falling , perhaps what we need is more information so we will know that this is just a passing storm .
Jeffrey M . Orth is a Chartered Financial Consultant , a Certified Advisor in Senior Living , and an Investment Advisor Representative , with over 10 years experience as a business and personal planning , insurance , and wealth management specialist . Jeff is available for group lectures and private consultations . Visit his website at www . ifitfinancial . com or call 408.842.2716 .