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October 2011 | Reflections On the Past Thirty-Three Years by Douglas Henrickson

NOVEMBER 27, 1978...

 

“HERE WE GO AGAIN!”  Anybody have these thoughts as you watch the world equity markets over the past few months? Have I had these thoughts? Sure! I am an investor, as you are, and I have emotions just like everyone else. So with these thoughts I started reflecting on my thirty-three year career in the financial services industry. The above date is the when I started.

 

Keep this percentage, 10.99% and dollar value $3,070,000, in mind. I will get back to them by the end of my “LOOK BACK.”

 

Driving home recently, after witnessing another last minute dive in the U.S. equity markets, I was thinking of some of the “crisis du jours” I have witnessed since 11-27-78. WOW! There have been more major distractions to a healthy economy than space will allow for me to list.  However, just for fun, I thought I would take you down a Reader’s Digest version of the derailments:

 

1979-1989

·        Mortgage rates consistently over 10% from 1979 through 1989; average of 13% from 1980-1984, with a peak of 18% in 1981

·        Prime interest rate over 15% from November 1980-August 1982; average over 10% for the entire decade, with a peak of 21.50% in December 1980

·        Inflation above 10% from 1979 through 1981

·        2,036 bank closings from 1980 through 1989

·        Iranian Revolution/Oil embargo

·        Black Monday (October 19, 1987)  ; 22% one day drop in the Dow Jones Industrial average

·        U.S. Savings and Loan crisis

·        Five times the S&P 500 had pull backs of more than 10%; two of which were more than 27%

·        Recession in 1980, which ended later the same yeear and then again in 1981, which ended in 1982

 
1990-1999

·        Persian Gulf War

·        Asian Financial Crisis

·        Long-Term Capital Management collapses

·        Russian default in 1998

·        Five times the S&P 500 had pull backs of 10% or more; two of which were just under 20%

·        Recession in 1990, which ended in 1991

 
2000-2009

·        World Trade Center & Pentagon attacks

·        Meltdown of technology stocks

·        Iraq War

·        Real Estate and Financial Industry meltdown

·        Global Financial Crisis

·        Once again, five times the S&P 500 had pull backs of more than 10%; one of 49% and one of 56%.

·        Recession in 2001, which ended later that same year and 2007, which ended in 2009


2010-2011

·        U.S. political unrest

·        Foreign debt default concerns

·        S&P 500 pull back of close to 20%

·        Double dip recession concerns


Turmoil seems to be a constant companion. Yes, there are brief periods of relative easy sailing, but the next “crisis du jour” is certainly on its way. So, with all of these setbacks, investing in equities over this time period must have had a disastrous result. WRONG! From January 1, 1979 through September 30, 2011, the S & P 500 had an average annual return, with dividends, of 10.99%. So, let’s imagine you invested $100,000 on January 1, 1979 and then promptly fell asleep until September 30, 2011. Upon waking from your slumber, the first thing you do is read a synopsis of all of the problems that occurred over the past thirty-three years. As your mind is racing wondering how badly your $100,000 investment performed, someone hands you your September 30, 2011 statement and you see a figure of $3,070,000. In his departure, the soothsayer that handed you the statement provides you with an unsettling commentary on current events; “But this time it is different!” Little do you know that these exact words were uttered during every economic setback along your sleepy journey to wealth. 

 

In Warren Buffet’s words, “The stock market remains an exceptionally efficient mechanism for the transfer of wealth from the impatient to the patient.”



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  • October 2011 | Reflections On the Past Thirty-Three Years by Douglas Henrickson
  • August 9, 2011 | Market Insight: U.S. Downgrade

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