« back
to News section
Greetings
from Boston! I'll be out of the office this week at a
conference. I will
be checking email and voicemail periodically and of course
keeping on eye on the markets!
~~~~~~~~~~~~~~~~~~~~~~~~
“Forewarned, forearmed;
to be prepared is half the victory.”
Miguel de Cervantes Saavedra (Spanish writer)
The
Markets
Wow that was fast…
Two
weeks ago
I highlighted an article for our readers:
A Who's Who of
Awful Times to Invest - "What I do know is that certain
factors have reliably identified egregiously bad times
to accept market risk, and that every
historical instance similar to the present has been a disaster." -
John P. Hussman, Ph.D.
Well, last week was a “disaster”...
Only
just a few days after hitting new highs in the Dow, investors
experienced the largest sell off in several years. For the
week, the Dow lost -4.2%,
the S&P 500 fell -4.9%, the Nasdaq dropped -4.7% and the Russell
2000 crashed -8%.
Though the stock market registered fresh
highs only a few sessions ago, the total return on the S&P
500 is now about even with Treasury bills for the period
from mid-December to the present.
What’s next for the
markets?
Given the steep decline, the market probably
deserves a clearing rally by now (which is no assurance we'll
observe one).
Though the S&P 500 is only 6% below
its recent highs, it has already provoked a surprising amount
of denial and lack of civility, with an
irritated financial news anchor suggesting on Friday, for
example, that Pimco's Bill Gross should “just shut
up.” It does no service
to investors when the media and the analysts who appear there
wholly rule out any possibility of a substantial further
market decline. Especially, when
we are in the longest bull market in over 50 years and the
2nd longest run in history w/ out a 10% correction.
| Returns through 07/20/07 |
1-Week |
Y-T-D |
1-Year |
3-Year |
5-Year |
10-Year |
| Dow Jones Industrials |
-4.2 |
6.4 |
18.2 |
11.2 |
9.7 |
5.5 |
| Nasdaq Composite |
-4.7 |
6.1 |
22.4 |
12.9 |
15.0 |
5.6 |
| Standard & Poor's 500 |
-4.9 |
2.9 |
14.1 |
11.9 |
11.3 |
5.1 |
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.
Top Headlines:
- Existing
home sales dropped to 3.8%
during June to a five-year low. Inventory levels dropped
4.2% but remain at a 15-year high. (7/25)
- The Federal Reserve's
Beige
Book showed that while the country is enjoying
moderate growth there are several districts
showing signs of softening. (7/25)
-
The Commerce Department reported that new
home sales fell
6.6% to 834,000 during June. This represents the lowest
level since 2002. Sales are down 22.3% compared to June
2006. (7/26)
-
Capital spending weakening during June as durable-goods
orders rose just 1.4% with demand for aircraft coming in
strong. Economists were expecting a rise 2.5%. (7/26)
-
U.S. second quarter GDP rose 3.4% representing the fastest
pace since the first quarter of 2006. Consumer spending
slowed from the first quarter but the report showed strong
growth and falling inflation. (7/27)
-
Concerns
over the debt market and the ability for companies
to finance share buybacks and takeovers fueled Thursday`s
sell-off, the second largest of the year. (7/27)
Before buying into a market dip, consider
these 20th century statistics:
- A 20% or greater correction
has occurred every 3.77 years; The current run extends
over 4 ½ years in length!
- Corrections of 10% or greater
occurred on average every 17.3 months; The current run
extends over 51 months!
If you were in a casino....would you go "all
in" with
those odds?
The point is that deeper losses can't be
ruled out, and it is irresponsible to pretend that they can,
particularly
given current conditions. For this reason, we continue
to remain defensively positioned until we see lower risk
opportunities
down the road.
For the few who may be unfamiliar; Peter Lynch is the
legendary stock picker who from 1977-1990 managed the Fidelity
Magellan Fund, the best performing mutual funds over that period. The
fund outperformed
the S & P 500 Index by a compound annual rate of 10.3%. A $1,000
invested in Magellan in 1977, when Peter Lynch became the
fund manager, was worth nearly $21,000 at the time he retired after thirteen
years.
Ten Most Dangerous Things People Say About Stock Prices. By Peter Lynch
- "If it's gone down this much already, how much lower can it
go? " (answer:
Zero)
- "If it's gone this high already, how can it possibly go higher?" (some
of the best companies grow for decades)
- "Eventually they always come back." (no
they don't - there are lots of counterexamples)
- "It's only $3 a share, what can I lose?" ($3
for every share you buy)
- "It's always darkest before the dawn." (It's
also always darkest before it goes absolutely pitch black.
Don't buy
a business just because price dropped and it is cheaper
now)
- "When it rebounds to my cost, I'll sell." (The
stock does not know you own it! Don't take it so personally)
- "What me worry? Conservative stocks don't fluctuate much." (There
is no such thing as a conservative stock - the average
stock fluctuates between 50% and 70% from its high to its
low price every year). There
is a graveyard where all the "conservative" stocks get buried.
Companies and businesses change!)
- "Look at all the money I lost - I didn't buy it!" (Don't
beat yourself up about the missed opportunities because
it is not productive - when he managed the Magellan Fund,
he almost never owned one of the
10 best performing stocks in a given year, but he did fine
anyway).
- "I missed that one. I'll catch the next one." (Doesn't
work that way)
- "The stock has gone up - so I must be right" or "The
stock has done down - so I must be wrong." (So many people like
something at 20 and hate it at 12 - never made much sense
to him).
Best Regards,
P.S. Please feel free to forward
this newsletter to family, friends, or colleagues.
|
