1st Quarter 2008

Anxiety Attack:

Stock market volatility in the first quarter of 2008 was more severe than we had experienced in over a decade.  The S & P Index began the quarter at 1,468 and ended at 1,323 for a net decline of 9.9%.  During the quarter the average reached a low of 1,273.  From its all time high on October 9, 2007 the market had an overall correction of 18.7%.  Inflation continues to rear its head as energy and food prices rise.  However, housing has declined because of subprime mortgage problems and interest rates have declined as the Federal Reserve decreased  rates, which has softened the inflation factor.  The major portion of people’s financial assets is tied up in homes and retirement plans, which tend to be more equity oriented.  Therefore, with real estate prices declining and the average equity mutual fund down 10.6% for the first quarter many of us are having a bad case of anxiety. 

We have now had five mont hs in a row of the equity markets closing lower in spite of the fact the Fed has lowered interest rates six times in the last six and a half months.  The dreaded “R” word keeps appearing in the news. 

So what is an investor to do?  People often make poor financial decisions when they see their investments gyrate wildly in value.  They get scared and sell when the market is down and buy too much when the market increases (i.e. the most recent real estate markets).  Warren Buffet’s advice is to “Be greedy when others are fearful”. 

Remember the way to make money in the market to buy low and sell high.  For those whose memory does not go back to October of 1987 the market declined 23% in that month with a 21% decline on Black Mo nday the 19^th.  If you would have sold you would have realized that 20% plus decline.  If you stayed the course, you recovered the loss in the next 20 mont hs and over the following 10 years the market averaged a 15% annual increase.  It’s been a tough five mont hs and all the problems are not resolved, but the markets will turn positive and you don’t want to miss the recovery.

No April Fools

The Dow Jones average was up 400 points on April 1, and that’s no joke. Step out of the market even temporarily and you may miss the whole point of owning stocks.

The Bond Market

Interest rates have continued to decline as money has left the equity market looking for the safer fixed income area. With the 10-year Treasury currently yielding 3.4% it is barely equal to the rate of expected inflation increases over the next few years. Short term rates are not attractive, but as we recover from what is probably a recession, rates will increase.

Thought For the Day

“Winning is important to me, but what brings me real joy is the experience of being fully engaged in whatever I am doing.” - Phil Jackson