Monthly Newsletter

October 2010

 

Sir John Templeton once said, “Bull Markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria”.  Certainly we can all agree that the last 10 years have been difficult.  Hind sight is 20/20:

 

  • The year 2000, we experienced the technology bubble.
  • The years 2007, 2008, and 2009 the liquidity crisis created the deep recession.

 

With the 20/20 vision of one of the worst decades in the stock markets, some investors are choosing to turn their backs on equity investments.  The critical question looking forward is:    are we likely to see a repeat of the decade which just ended?  We believe there are 5 key reasons equities may have a favorable outlook for the coming decade ending in the year 2020.

 

1.       HISTORY FAVORS A RETURN TO THE MEAN

Investors often assume the worst or the best will continue.  It is important not to overlook long term market history.  Since 1925, only 5% of decades were negative; 95% of decades were positive.*

 

2.       THE WORLD IS GETTING SMALLER (AND MORE PROSPEROUS)

The world is not only shrinking but emerging nations are experiencing growth of the middle class and consuming at a rising rate.

 

3.       INNOVATION WILL SURPRISE US … AGAIN

While we should expect change (but never fully do), the real surprise might be the pace at which it occurs.  Charles H. Duell, Commissioner, U.S. Office of Patents, 1899 said, “Everything that can be invented has been invented”.  Wow… how wrong he was.

4.       QUALITY COMPANIES ARE NOT SHORT-SIGHTED

The market is continually growing and changing.  While some companies don’t survive this evolutionary process, the strongest benefit from it.  An example would be: Polaroid photography went out, digital photography won out!  This is why we believe that active portfolio management helps sort out the losers from the winners; and also keeps us diversified and balanced.

 

5.       EQUITIES (STOCKS) HELP PROTECT PURCHASING POWER

For most investors, adding equities as part of their investment mix may help reduce the potential risk in their overall portfolio.  Equities can help offset inflation.      

History shows: Investments made on 12/31/1977 were worth the following on 6/30/2010:**

$1 invested in Stocks             now worth $8.21

$1 invested in 60% Stocks

                     40% Bonds     now worth  $7.54

$1 invested in Bonds             now worth  $4.78

$1 invested in Gold               now worth  $2.07

One US Dollar                      now worth  $  .29

 

Thank you for reading this to the end.  Now you have an idea of how we feel the future is likely to be.  If you think someone you know would like a copy of this letter, give us a call.  We will be happy to mail or email them a copy.

 

 

Foot Note Sources:

 

*     2010 Morningstar Index

**   Source 2010 Morning Star.  Stocks represented S&P 500 index; Bonds represented by Ibbottson 

      Associates, long term corporate index

      Cash represented by P&R 90 day treasury index; Gold represented by S&P GSCI Gold Spot Index; US                       

      Dollar discounted by inflation using the CPI

 

Indexes are unmanaged and one cannot invest in an index directly. 

PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS