FINANCIAL FOCUS Unsettling times still offer opportunities
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.