after crash[1]
TRANSCRIPT
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After The Crash
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“Investors who have either the enterprise or the money to invest now, somewhere near the bottom, are likely to prevail over those
who wait for the bottom and miss it.”
-Benjamin Graham
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Market Crashes From A Historical Perspective
Since 1928, there have been 87 market drops of 10% or more,
compared to 23 market drops of 20% or more.
*Source: GV Financial Advisors, “Market Volatility: Ten Steps to Calming Down in a Down Market.”
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Since 1946, it has taken the market just 111 days, on
average, to rise to its pre-crash levels.
*Source: GV Financial Advisors, “Market Volatility: Ten Steps to Calming Down in a Down Market.”
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The reason stocks have historically returned more than
fixed income over the long-term is because stock holders endure
the volatility of the market.
*Source: GV Financial Advisors, “Market Volatility: Ten Steps to Calming Down in a Down Market.”
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Without the volatility that goes hand-in-hand with stock
ownership, the risk returns associated with stocks would diminish, and so would the
attendant wealth.
*Source: GV Financial Advisors, “Market Volatility: Ten Steps to Calming Down in a Down Market.”
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*The following indices are being used for the above model: Long Term Gov’t Bonds, One Month US Treasury Bills, Fama/French US Small Value Index, Fama/French US Large Value Index, CRSP Deciles 9-10 Index, CRSP Deciles 6-10 Index, S&P 500 Index. Performance figures taken from DFA Returns Software Version: 2.0, September 2008. Past performance is not indicative of future performance.
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The Crash
• February 2001–February 2003
• 22 Months
• Total Portfolio Return: -36.42%
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March 26, 2001
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Quotes from 2002
• “Fear of a free fall in the market.” –U.S. News and World Report
• “Most Americans have lost faith in the stock market.” –Associated Press
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Since February 2003 (After The Crash)
44.54%
12.76%
20.08%
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The Crash
• September 1987–October 1987
• 2 Months
• Total Portfolio Return: -23.25%
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November 2, 1987
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Quotes from 1987
• “Technically, the crash of 1987 bears an uncanny resemblance to the crash of 1929.” –George Soros
• “What do you expect us to do? Announce that all the Cabinet members will be buying IBM and General Motors tomorrow?” – Administration Official, New York Times
• “The borrowing has to stop. The market slide was a shot right between the eyes that had better wake us all up to the simple fact that we can’t keep romping forever in borrowed money.” – Lee Iacocca
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Since October 1987 (After The Crash)
18.40%
11.80%12.55%
14.24%
6.07%
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The Crash
• January 1973–September 1974
• 21 Months
• Total Portfolio Return: -42.62%
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September 9, 1974
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Quotes from 1974–1975
• “The U.S. banking system has been stretched very nearly to the limit.” –Business Week
• “Now even nations are in danger of default.” –Business Week
• “The worldwide threat of financial instability rises.” –Business Week
• “The slide is steep, with NO end in sight.” –Business Week
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Since September 1974 (After The Crash)
35.12%
16.26%
23.66%20.38%
26.27%
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The Crash
• November 1969–May 1970
• 7 Months
• Total Portfolio Return: -19.32%
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June 1, 1970
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Quotes from 1970
• “For automakers, 1970 was the toughest year in at least a decade. Buyers spurned big models in favor of less profitable compacts, minicars and fast-increasing imports.” –Time Magazine
• “Unemployment rose from 3.9% in January to 5.8% in November, the highest in 7 years.” –Time Magazine
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Since May 1970 (After The Crash)
33.14%
13.88%
7.83%
12.28%
8.14%
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The Crash
• March 1962–October 1962
• 8 Months
• Total Portfolio Return: -17.55%
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June 1, 1962
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Quotes from 1962
• “There, behind its grey stone walls and Corinthian columns, the New York Stock Exchange was shuddering through its worst week since 1950.” –Time Magazine
• “In one hectic week, the paper value of the 1,545 stocks listed on the Big Board plunged by $30 billion—which is more than the GNP of Australia, Sweden, and Ireland.” –Time Magazine
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Since October 1962 (After The Crash)
26.17%
12.53%
17.41%
11.94%
18.96%
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The Crash
• June 1946–April 1947
• 11 Months
• Total Portfolio Return: -20.96
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September 19, 1946
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Quotes from 1948
• “The unit volume of retail sales went down an estimated 10% during 1947.” –Time Magazine
• “It is far too late in the fight against inflation to place our main reliance upon voluntary action.” –President Harry Truman
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Since April 1947 (After The Crash)
13.30%12.42%12.59%
13.17%
10.65%
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The Crash
• September 1929–June 1932
• 34 Months
• Total Portfolio Return: -83.41%
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February 1934
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Quotes from 1929–1931
• “The country is not in good condition.” –Calvin Coolidge
• “Wall Street in Panic as Stocks Crash.” –Brooklyn Daily Eagle
• “Wall Street Lays an Egg.” –Variety Newspaper
• “Wave after wave of selling again moved down prices on the Stock Exchange today and billions of dollars were clipped from values.” –Minneapolis Star
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Since June 1932 (After The Crash)
257.00%
17.76%43.03%
17.42%
46.00%
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What if you locked in losses?
• On December 8, 2008, the S&P 500 Index was -38.4% and U.S. Government Three-Month Treasury Bills were yielding .005%.
• Assuming nothing changed ever (i.e. T-bill rates stayed at .005%) and you rolled your investment into T-bills for eternity…
– How long would it take for you to make up the losses?
Source: http://econompicdata.blogspot.com/2008/12/t-bills-2396-years-to-make-up-ytd.html
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2,396 Years!
Source: http://econompicdata.blogspot.com/2008/12/t-bills-2396-years-to-make-up-ytd.html
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What Crashes Teach Us
• There ALWAYS is a recovery.• Exact market bottoms are impossible to predict –
Don’t Try.• The next 100% move is always up.• Market recoveries historically are fast and
furious.• The single largest recovery followed the single
largest crash.• The highest historical returns follow a crash.
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January/February 2009
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“Investors who have either the enterprise or the money to invest now, somewhere near the bottom, are likely to prevail over those
who wait for the bottom and miss it.”
-Benjamin Graham
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Necessary Attributes To Benefit From Long-term Equity Investing:
•Faith
•Courage
•Wisdom