Author Topic: CALM IN THE STORM from Beverly Highland  (Read 1089 times)

Offline Reginald Hudlin

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CALM IN THE STORM from Beverly Highland
« on: August 10, 2011, 02:39:21 pm »
Judging by the number of calls and emails I have received, I know investors, family, and friends are concerned about the recent moves in the markets, so I want to reach out with some thoughts.
Today marks only the seventh time in history that he S&P 500 has experienced a minus 3% day, followed by a plus3% day, followed by another minus 3% day. Five of those instances were in the 1930's. In each of six previous instances, three weeks later the markets were positive by an average of 6.2%.
There have been 22 times when markets have dropped by more than 13% in less than two weeks. We are currently in one of these times. When you crunch the numbers of those 22 instances, the mean return after six months was +10.2%. The mean return after one year was greater than 20%. If you exclude the data points that occurred during the Great Depression, those percentage gains are significantly better than the +10.2% and the +20% numbers cited above.
As ugly and stressful as the markets are right now, I believe we need to view the fear and panic as a necessary element of the bottoming process. Markets need fear to create a bottom. This has always been true and I expect that this time is no different.
Think back to March 2009, when fear was at an extreme, investors were panicking just as we established a market bottom, from where we started a huge rally. Conversely, when investors feel euphoric that is the time to step away from the markets.
Consider this: in February 2000, investors set a new record for inflows of money into mutual funds and personal accounts. That record inflow of money, coincided precisely with the market top and tech bubble bursting. Conversely, an internal memo from UBS, that was leaked yesterday, showed that investors pulled 1.3 billion dollars out of their accounts on Monday. That is the biggest outflow since the "flash-crash" spooked investors into doing the same thing. Those investors, who got spooked into pulling their money out of the market after the flash-crash, missed a huge year end rally.
I can site numerous facts and statistics that argue that we have put in a market bottom on Monday night when S&P futures were trading down 30 points overnight, after losing 80 points during the regular session. Unless you are one of the (very) few, who love this stuff, the way I do, I'll save you the boring details here, but I will say that I believe we are at, or very near, the near term bottom for the stock market.
While fully recognizing the structural problems the economy faces and the rudderless, dysfunctional leadership in Washington, I believe we will survive this storm.
In my opinion, this moment in market history, will be like others from the past; the exact moment when investors' fear is at a peak, in hind sight will prove to have be a golden opportunity for those investors able to step-in when other would flee.
I expect we will have many volatile days over the next month or two, but I that volatility should set up the markets for a rally. It has happened in each of the prior six instances when we have been in this situation, I expect ts time to be the same.
A year from now, I expect to receive calls and emails from investors and friends regretting that they did not use this time to add to their stock market investments. I am encouraging my family and friends to do just that - namely use this pull-back as an opportunity to invest additional money in the markets. The market has always rewarded those with the stomach to swim against the tide.
Please feel encouraged to contact me with any questions or concerns.
Be well and stay strong.