FI­NAN­CIAL FO­CUS Un­set­tling times still of­fer op­por­tu­ni­ties

The Covington News - - News -

If Frank Si­na­tra were around, he might not sing “It Was a Very Good Year” in front of a bunch of in­vestors. In fact, af­ter pon­der­ing the chaos of the past few weeks, many peo­ple might think this is a ter­ri­ble time to in­vest in the stock mar­ket. How­ever, his­tory of­ten has a way of turn­ing the ta­bles. Cer­tainly, there’s rea­son for con­cern. Af­ter all, Congress has just ap­proved a $700 bil­lion bailout of the fi­nan­cial ser­vices in­dus­try, fol­low­ing the col­lapse of some ma­jor Wall Street firms and large banks. And the Dow Jones In­dus­trial Av­er­age has fallen more than 25 per­cent since its all­time high in Oc­to­ber 2007. And yet, we’ve cer­tainly had other years in which the in­vest­ment land­scape seemed grim. For ex­am­ple, in 1973, a se­ries of events — in­clud­ing the Water­gate scan­dal, the OPEC oil em­bargo, the Viet­nam War and the res­ig­na­tion of Vice Pres­i­dent Spiro Agnew — had shaken the pub­lic’s morale. Given all this, you might have thought that 1973 was a bad year in which to in­vest in the stock mar­ket. But you’d have been wrong. From Nov. 30, 1973, to Nov. 30, 1983, the S&P 500 recorded an av­er­age an­nual re­turn of 10.9 per­cent. So, if you had in­vested $10,000 in the mar­ket at the beginning of that pe­riod and rein­vested the div­i­dends, it would have grown to $28,139 by the end. (Keep in mind, how­ever, that the S & P 500 is an un­man­aged in­dex, and you can­not in­vest di­rectly into it.) Of course, as you’ve heard, “past per­for­mance can­not guar­an­tee fu­ture re­sults.” And some sig­nif­i­cant dif­fer­ences ex­ist be­tween 1973 and 2008. In 1973, most of the prob­lems that wor­ried in­vestors were ex­ter­nal to the fi­nan­cial mar­kets. This year, it’s the mar­kets them­selves that have turned some­what toxic. Still, there’s some cause for op­ti­mism. Con­sider the fol­low­ing: • Bailout may im­prove busi­ness cli­mate. One of the chief goals of the $700 bil­lion bailout is to in­ject some much-needed cash into the fi­nan­cial sys­tem, which has been ren­dered al­most illiq­uid by the sub­prime mort­gage cri­sis. In­creased liq­uid­ity means that busi­nesses will have eas­ier ac­cess to credit — and all com­pa­nies need credit to ex­pand their op­er­a­tions and be­come prof­itable. Ob­vi­ously, the greater the num­ber of suc­cess­ful com­pa­nies, the more in­vest­ment op­por­tu­ni­ties be­come avail­able. • Reg­u­la­tory cli­mate may change. While sev­eral fac­tors are re­spon­si­ble for our cur­rent tur­moil, one key cul­prit ap­pears to be the lack of ap­pro­pri­ate reg­u­la­tion over some as­pects of the fi­nan­cial mar­kets. It seems quite likely that law­mak­ers, in the near fu­ture, will de­velop some new reg­u­la­tory guide­lines that may help pre­vent a re­cur­rence of the events of this year. • Stocks are at­trac­tively priced. Look for qual­ity stocks - rep­re­sent­ing com­pa­nies with com­pet­i­tive prod­ucts, strong man­age­ment and long track records of prof­itabil­ity - and con­sider buy­ing th­ese stocks when their price is low Typ­i­cally, qual­ity stocks are the first to re­bound when the mar­ket re­cov­ers. Here’s the bot­tom line: The in­vest­ment cli­mate may be brighter to­mor­row — and you can find good stocks at lower prices to­day. So don’t stick your money un­der the mat­tress. Years from now, you may look back and re­al­ize that 2008 was, in­deed, a very good year in which to con­tinue in­vest­ing.

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