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Have We Hit the Bottom?
Posted on December 11, 2008 at 6:36 pm
Filed Under Financial Markets, Financial Planning
That is a question that has been asked by nearly all of us around the world in the last couple of weeks.
In terms of the market, it’s hard to imagine things getting worse. Yet every day we open the paper or turn on the radio we hear of a new wave of job losses, a new institution going bankrupt or issuing new shares to raise capital. How is it possible to know if we are at the bottom or not. Or better yet, is it possible at all?
In my opinion, it’s close to impossible to predict the future or for that matter, the current bottom. We can use historical data to make that assumption, but in many cases we can slice and dice the information to further prove our point. One personal finance Columnist for the Wall Street Journal, Jason Zweig, said in a recent article that “his initial research showed that the drop in 2008 as of November 20th was the worst drop since 1926. In fact, if the November 20th year-to-date losses hold, 2008 would be the worst year in the New York Stock Exchange’s 194-year history.” Read that sentance out of context, and we are in dire straights and running for the closest bomb shelter.
On the other hand, and better yet in the same article, Abby Joseph Cohen, CFA, president of the Global Markets Institute and senior investment strategist at Goldman Sachs said “In our Goldman Sachs forecast for quarterly economic growth, we believe the economy is at its worst right now; GDP decline in the fourth quarter of 2008 and the first quarter of 2009 will be dreadful. However, we could see stabilization and some glimmer of growth by the end of 2009.” That sounds much different then the first sentance, doesn’t it?
The simple fact that two incredibly bright and well respected financial Commentators feel very differently about the exact same issue further lends to the idea that it is impossible to predict the future or the bottom. If that’s the case, what is one to do in terms of their response to this myriad of information overload?
Your Take-Away: What we are doing both for ourselves and our clients is a simple as “sticking to the plan”. After all, we have no idea when we as a country or even a global economy will come out of this mess, but we are confident that we will…one day. If that’s true and we can’t predict the bottom, how can we then predict the inevitable turn around and thus get our money back into the market at the perfectly right time? “Sticking to the plan” is a combination of both having a plan to start with and believing in that plan and the core fundamentals and reasons you initiated it in the first place.
This may sound a bit simplistic in thought, but I challenge you to consider what would happen if you were to pull your money out of the market at the wrong time, completely hijacking your plan, and then get back into the market at the wrong time again. The end result, your losses are no longer just on paper. They are very, very real. I’m confident if you think three, five or ten years out, you will be more then happy with your decision to see this through.
Until next time, have a Terrific Thursday!
Chris
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