IFPA award ifpaaward.jpg

Hold on investors ,,, history's on your side!

Hold on investors ,,, history's on your side!
By Brendon C. Hutchins
Senior Vice President, Client Service,
St. Germain Investments


I am writing this not only as a financial advisor and planner, but more importantly, as an investor who understands the frustration, concern, and uncertainty this historic slide in the market has created.
I am writing this as someone who, like you, is nervous about the future, as someone who has questions whether stocks will ever stop losing value (let alone recover).

Running the numbers
Many sleepless nights over the past few months have prompted me to do some research and analysis of the markets' reactions to past recessions and economic slowdowns. My discoveries have reinforced my confidence.
I did a lengthy analysis on market recoveries after some of the worst periods of stock market performance.
The findings are encouraging because in all cases to date, investors have always recovered their money if they "stayed the course".
In every case following the previous worst ten year periods in stocks, investors have made back at least what they lost over the next ten years (in fact in some case, it only took 5 years.)
More than half the time, following the worst ten years, investors have doubled, tripled or even quadrupled their money!


Analyzing the trends
In addition, I wanted to take a look at previous recessionary periods and evaluated (1) how long they typically lasted and (2) how stocks performed as the economy began its recovery.
Here's what I found:
Since 1929, there have been 13 recessions declared by the National Bureau of Economic Research (the 14th and current recession started in December 2007.)
The longest of those recessions lasted 43 months, while the shortest lasted 6 months.
The average duration for those 13 recessions was 12.92 months.
The current great unknown is how long this recession will last. As of Feb. 1, the current recession is clocking in at 14 months, longer than all but three of the recessions we've seen since the Great Depression.
It's not uncommon right now to hear comparisons of this current situation to that of the Great Depression, and in my opinion like those of many others, this opinion is way off-base. There are countless reasons why it is extremely unlikely that we'll see a protracted malaise in the economy.
For starters, let's look at some of the data:
In 1933, over 4000 banks failed. Through the date of this report (in early Feb. 09), there have been 31 bank failures requiring involvement of the FDIC. I fully expect 2009 to see many more casualties in the banking sector, but we are a far cry from the fear surrounding bank deposits that fostered the bank runs of the past. In fact, the FDIC was created by the Glass-Steagal Act in response to the bank panic of 1933, and fosters confidence in banking deposits... even in an environment like we have today.
Employment, or the reduction of it, is also a major concern. Our economy has lost over 2.5 million jobs during the past 12 months, and the trajectory for the employment situation continues to be down.
During the Great Depression, however, the unemployment rate topped out at 25 percent.
Today, after the worst jobs year since WWII, we face an unemployment rate of 7.6 percent. This number is likely to go higher as the economy continues to crawl along and companies cut expenses, but we are worlds apart from having a quarter of the workforce unemployed!
Admittedly, it is hard to pull back from the day-to-day news that report grim headlines. Looking at how markets have historically responded to both short and longer term bear markets, however, gives me hope. We do not know the timing of the rebound, but history is telling me that we are getting close.
Column provided to PRIME by: St. Germain Investment Management; 1500 Main Street, Springfield, MA; 413-733-5111 or 1-800443-7624; web site:www.stgermaininvestments.com