Special Bulletin to Our Clients – November 20, 2009

(text of email sent 11/20/09)

Given the markets’ precipitous decline through early March of this year, and the subsequent, equally historic (and similarly choppy) rebound to date, we thought this might be an opportune time to put the prognostications of the financial press into perspective, and to reaffirm one of our fundamental principles.

There is no shortage of opinions regarding how the markets are behaving and where they are headed. Some excerpts from the Wall Street Journal last week:

• “While it’s possible that new bubbles are being inflated in financial markets, history suggests there is often a lag between the moment experts identify bubbles and the time they pop. Former Federal Reserve Chairman Greenspan warned in 1996 of ‘irrational exuberance’ in the stock market, but stocks didn’t collapse until 2000.”
• “Some believe all the hand-wringing about the stock market is overdone…that stocks had fallen to panic-driven 12 month lows in March, before recovering. If stimulus produces real economic recovery, the stock gains make sense. Other analysts see signs that at least a short-term pullback could be coming.”
• “On an inflation-adjusted basis, gold would have to hit $2,291.55 to equal its 1980 record which makes gold bulls think it has higher to go. In theory a defensive play, gold’s big gains have made it a speculative bet for some investors which has led some longer-term gold bulls to lighten…fearing a short-term slump.”

All the above aimless commentary was from just one article! Regardless of the news source, for every commentator nervous about the markets being overheated and ready for a steep fall, there is another that is convinced that they have a lot further to run. So much of what we currently read and hear is not only hyperbole, but is short-term in nature and thought. It illustrates the need to adhere to a long-term investment strategy amidst the noise — a strategy that is in alignment with your long-term financial plan.

The current run-up in the markets will end at some point. No one can predict when. And the ride is likely to be bumpy regardless of direction. But remember our mantra: the markets go up, they go down, but over the long term, they go up. Accordingly, as you know, and we have reiterated during good times and bad — we will not try to time the markets. Serial market timing is a loser’s game. Throughout history, the best-performing portfolios have been those that steadfastly adhered to a well-diversified asset allocation no matter the short-term fluctuations in the markets. Having said that, we continue to try to improve the downside protection of your portfolio — through newly available asset classes such as long/short commodity investments and absolute return/market neutral funds, and by pursuing “safety net” protection at a reasonable cost.

We remain readily available to discuss your investment strategy whenever you wish. In the meantime, keep us informed about your need for ready cash, but remember that that is a much different decision from what your long-term asset allocation strategy should be. Our aim is to work with you to follow a strategy best designed to help you achieve all your goals — not just for the next few months, but over the next several decades.

Your team at Brinton Eaton