At the most volatile and fearful leg of an investment cycle, an investor is left with two choices: a.) Liquidate equity positions and move to interest bearing CD’s or money markets in an attempt to stop the bleeding, or b.) Look at your portfolio for diversification, and if adequate, maintain your position and wait until the panic recedes and attention turns back to market fundamentals.
The case for maintaining positions can be made by the market data below. These dates show market lows and market highs over the past sixty five years. As measured by the Dow Industrial Average, every market decline (and there have been severe ones) has been followed by gains to new highs. The most recent decline of nearly 40% from 2000 to 2002 was followed by a near doubling of values in just 4 years! The third column illustrates how long it took to recover from the market low to its previous high.
We feel that current market valuations show a substantial oversold reading that has not been seen in decades. This, coupled with high current cash levels and high U.S. export volume, has us on the side of history and the probability of coming out of this decline in similar fashion to those before. Our position continues to be that maintaining quality positions during market volatility results in the best long term growth potential.
| Dates | Dow Jones Industrial Average | Time to Recover |
|---|---|---|
| 4/24/1942 to 1/18/1966 | 94 to 994 | |
| 1/18/1966 to 10/8/1974 | 994 to 587 | 1 yr. 4 mos. |
| 10/8/1974 to 8/21/1987 | 587 to 2,709 | |
| 8/21/1987 to 10/19/1987 | 2,709 to 1,738 | 1 yr. 10 mos. |
| 10/19/1987 to 1/14/2000 | 1,738 to 11,723 | |
| 1/14/2000 to 10/9/2002 | 11,723 to 7,286 | 4 yrs. |
| 10/9/2002 to 10/12/2007 | 7,286 to 14,093 |