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“You
get recessions, you have stock market declines. If you
don’t understand that’s going to happen,
then
you’re not ready, you won’t do well in
the markets.” – Peter Lynch
The Markets
“It's not what's in the news today,
it's what's already in the price that matters.” Unfortunately,
that insightful comment from the March 3rd issue of Barron’s
magazine leaves unanswered just how much of the current bad
news is already priced in the market.
Last week’s news was not pretty, yet the markets,
while down, did not reach panic mode. For the most part,
investors seem to realize that the economy has issues and
corporate earnings growth is likely to slow down. The fact
that stock prices are down this year seems to reflect that
understanding. However, going forward, for stock prices to
move dramatically to the upside or downside, there would
likely need to be a mass shift from the current expectations
built into the markets. The only problem is, nobody can predict
a) how much bad news is already “built” into
the market, and b) whether the next market moving news will
be positive or negative.
The Federal Reserve seems intent on
keeping interest rates low at the possible expense of inflation,
according to Fed
Chairman Ben Bernanke in testimony to Congress last week.
That stance has potential positive and negative ramifications.
If he overshoots and rates go too low, that may cause inflation
to ramp up and the dollar to keep declining. On the positive
side, if he strikes the right balance, it may prevent a deep
recession. Investors are not shy in voicing their opinions.
Some say Bernanke is nuts and is dropping rates too much
while others say he’s on the right track.
As long as investors
hold opposing opinions, it may prevent markets from spinning
out of control. If everybody decided at the same time that
the markets were under pricing the economic slowdown, then
we may have a problem as everybody rushes for the exits.
As always we will be keeping a close eye
on market risk so you don't have to!
| Returns through 2/29/08 |
1-Week |
Y-T-D |
1-Year |
3-Year |
5-Year |
10-Year |
| Dow Jones Industrials |
-0.9 |
-7.5 |
1.3 |
4.4 |
9.2 |
3.7 |
| Nasdaq Composite |
-1.4 |
-14.4 |
-4.1 |
3.1 |
11.2 |
2.6 |
| Standard & Poor's 500 |
-1.7 |
-9.4 |
-4.1 |
3.2 |
9.8 |
2.4 |
Source: Yahoo! Finance, Barrons
Past performance is no guarantee of future results. Indices
are unmanaged and cannot be invested into directly. Three-,
5-, and 10-year returns are annualized. Assumes dividends
are not reinvested.
What Should I Expect From My Financial
Advisor in a Down Market?
There’s an old saying in the financial service industry
that financial advisors and financial planners earn their
money in down markets when their clients’ natural
tendencies are to make emotional decisions that damage their
financial futures.
This saying is absolutely correct if the
professional you are depending on is a real financial advisor.
Too many
so-called advisors are really sales representatives who
are paid commissions to sell you products. Since they aren’t
paid a fee to help you achieve your goals, they disappear
during down markets and reappear when conditions have improved.
Real financial advisors and financial
planners should be educating you about down markets that
occur every few
years when excesses negatively impact the economy and
company earnings. In the current case, the banking and mortgage
industries combined to write an estimated trillion dollars
of bad loans that Wall Street converted into securities
called Collateralized
Debt Obligations. We will
be
in a down market until this excess has worked its way
through the economy and markets.
You should also expect your
financial advisor to inject some discipline into your
investment process to help you
minimize the impact of emotional decision-making. When
investors turn fearful, their natural reaction is to start
selling
investments that are declining in value. Your financial
advisor should help you to make rational decisions and
avoid emotional decisions that will reduce your future results.
You should also expect your financial
advisor or financial planner to keep you fully informed
about the performance
of your assets and your exposure to additional down market
risk. The more you know about what’s happening to
your assets and why, the more comfortable you are going
to feel. And, we know from investor surveys that there is
a substantial increase in fear when they are not kept fully
informed by readily accessible advisors.
You should expect
your financial advisor or financial planner to be recommending
adjustments to your portfolio. For example,
there may be securities you’ve wanted to sell, but
held back due to tax consequences. Or, there are investments
you’ve wanted to buy, but their prices were too high.
You may also have existing positions you have wanted to
add to when prices were lower. A quality advisor will help
you benefit from down markets by positioning your assets
for future appreciation.
Hoboken celebrates St. Patrick's day 2
weeks early so we are already in the spirit. See if you can
match the Irish words below to the appropriate definitions.
Once
you’ve
mastered the vocabulary, you can begin working on your accent
for
a wonderful St. Patty’s Day celebration!
 |
1. Sláinte |
A. A brawl or uproar |
| 2. Blarney |
B. A club of oak or blackthorn |
| 3. Brogue |
C. Flattering talk or deceptive nonsense |
| 4. Donnybrook |
D. To put an end to something |
| 5. Saint Patrick |
E. An alcoholic drink |
| 6. Shillelagh |
F. Good health |
| 7. Kibosh |
G. Patron saint of Ireland |
| 8. Poteen |
H. A heavy shoe made of untanned leather or an strong
regional accent |
Click here for the answers.
Thanks for your trust & confidence,
P.S. DON'T KEEP US A SECRET! At Ford Wealth Management we know that referrals from your friends, family and colleagues are the sincerest form of flattery. We appreciate your business and hope that you will pass along our name and number to anyone who would benefit from our services.
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