Rational Investing in Irrational TImes
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Material prepared by Raymond James for use by our financial advisors. Rational Investing in Irrational Times Hosted by: Sean C Suarez, WMS Financial Advisor, Wealth Management Specialist
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A look at how we got into this mess of a financial meltdown, what to do in the midst of it, and how to capitalize going forward. This presentation illustrates the need of hiring a professional advisor to help you manage your emotions during times of uncertainty.
Transcript of Rational Investing in Irrational TImes
Material prepared by Raymond James for use by our financial advisors.
Rational Investing in Irrational Times
Hosted by:
Sean C Suarez, WMSFinancial Advisor, Wealth Management Specialist
Why We’re Here …
Understand the current economic situation
Assess the implications
Provide perspective
Look toward the future
Answer what questions we can
Something to Think About …
“Be fearful when others are greedy, and be greedy when others are fearful.
“I haven’t the faintest idea as to whether stocks will be higher or lower in a month – or a year – from now.What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up.”
– Warren Buffett New York Times op-ed October 16, 2008
What Happened?
The collapse of the subprime lending market and the end of the real estate “bubble” led to credit problems in all sectors of the economy, both in the United States and abroad.
Many once-strong U.S. financial institutions fell on hard times in 2008, leading to bankruptcy, failure or acquisition.
Countrywide Bear Stearns WaMu Freddie Mac Fannie Mae Lehman Brothers Merrill Lynch IndyMac Wachovia
On October 3, 2008, the Emergency Economic Stabilization Act was enacted into law, launching the Troubled Asset Relief Program (TARP), a $700-billion bailout plan to cope with the bad debt left behind by these and other troubled institutions.
On December 1, 2008, the National Bureau of Economic Research officially declared the economic slowdown in the United States to be a recession, while economies around the world also faltered.
On December 19, 2008, the Bush administration put forth a plan that would pump $13.4 billion in TARP funds into General Motors and Chrysler.
Job losses in the final four months of 2008 exceeded 1.9 million, bringing the December unemployment rate to 7.2%, its highest level in 16 years.
At yearend 2008, the Dow Jones Industrial Average had plummeted 4,488.43 points, or 33.8%, its most dramatic loss since 1931. The broader S&P 500 Index fell 38.5%.
Source: Fact Set
Where We Are Now
The Dow Jones Industrial Average is an unmanaged index of 30 widely held stocks. Investors cannot invest directly in an index.Past performance is not indicative of future results. Source: Dow Jones
Dow Jones Industrial Average
Looking Forward
The historical average annual inflation rate during the time periods where the country was in recession. (Source: InflationData.com)
Past Recessions and Inflation
Unemployment Rate Concern
Source: Bureau of Labor
Past Recessions and Unemployment
Oil Price Declines Help
Oil Price per Barrel
Source: FactSet
What Has the Government Done?
Source: Federal Reserve
Fed Funds Rate
Historically, Most Markets Show Long-term Gains …
Past performance is no guarantee of future results. • An investment cannot be made directly in an index. • Hypothetical value of $1 invested at the beginning of 1926. Assumes reinvestment of income and no transaction costs or taxes. This is for illustrative purposes only and not indicative of any investment. • Source:
Created by Raymond James using Ibbotson Presentation Materials. ©2008 Morningstar, Inc. All rights reserved. Used with permission.
Calendar-Year Total Returns for Large Company Stocks1 (1926 to 2007)
… While Experiencing Dramatic Ups and Downs
Source: Ibbotson
1 Large company stocks represented by S&P 500® Index. The S&P 500 Index is widely regarded as the standard for measuring large-cap U.S. stock performance, and includes a representative sample of leading companies in leading industries. The index is unmanaged and is not available for direct investment.
Past performance is not indicative of future results.
Why Market Timing is So Difficult
All investing involves risk and you may incur a profit or a loss. Past performance is not a guarantee of future results. Source: The Hartford, Ned Davis Research. The S&P 500 Index measures changes in stock market conditions based on the average performance of 500 widely held common
stocks. It is a market-weighted index calculated on a total return basis with dividend reinvested. The S&P 500 represents approximately 75%of the investable U.S. equity market. Indices are not available for direct investment.
Occurred during a bear market
Occurred during the rest of a bull market
Occurred duringthe first two months of a bull market
S&P 500 Index: The 50 Best Days from 1978 to 2007
Impact of Missing the Market
All investing involves risk and you may incur a profit or a loss. Past performance is not a guarantee of future results. Source: The Hartford, Ned Davis Research. The S&P 500 Index measures changes in stock market conditions based on the average performance of 500 widely held common
stocks. It is a market-weighted index calculated on a total return basis with dividend reinvested. The S&P 500 represents approximately 75%of the investable U.S. equity market. Indices are not available for direct investment.
S&P 500 Index Average Annual Total Returns: 1978 to 2007
Periods of Consecutive Negative Stock Returns, 1926 to 2007
Past performance is no guarantee of future results. • An investment cannot be made directly in an index. • This art is for illustrative purposes only and not indicative of any investment. 3/1/2008 • Source: Created by Raymond James using Ibbotson Presentation Materials ©2008 Morningstar, Inc. All rights reserved. Used with permission.
Market Downturns and Recoveries, 1926 to 2007
Past performance is no guarantee of future results. • An investment cannot be made directly in an index. • This art is for illustrative purposes only and not indicative of any investment. 3/1/2008 • Source: Created by Raymond James using Ibbotson Presentation Materials ©2008 Morningstar, Inc. All rights reserved. Used with permission.
Diversification Can Help Provide Consistent Returns
Past performance is no guarantee of future results. • An investment cannot be made directly in an index. • Time period illustrated is from 1956 to 1962. This time period was chosen as a dramatic illustration of stock and bond return behavior and how their often opposite movements reduced portfolio volatility. This is for illustrative purposes only and not indicative of any investment. • Source: Created by Raymond James using Ibbotson Presentation Materials ©2008 Morningstar, Inc. All rights reserved. Used with permission.
Asset Allocation Can Help Manage Risk
Index Descriptions
Recommendations for Investors
Don’t overreact:The temptation to “exit the market” may be nearly overwhelming.
Think long term: As Buffett – and history – tell us, at some point, the markets will turn. We don’t know when … or to what degree. So be wary of selling at the bottom – and missing opportunities as the market recovers.
Assess your situation:Evaluate your short-term financial needs and reaffirm your longer-term goals.
Evaluate your investments:Review your financial plan and your portfolio to help put current events into perspective – and if you conclude it’s needed – make necessary adjustments.
Look for opportunities:Once you’ve thoroughly assessed the situation, your holdings and your personal circumstances, you may want to start identifying opportunities for future investment. Securities issued by fundamentally solid companies, backed by expert management and sound policies, may be at historically low prices now. But as the economy turns, they could offer significant potential for appreciation.
Raymond James Financial
While no financial firm can be totally unscathed by recent market and economic events, Raymond James Financial continues to fare well in this challenging environment.
We attribute this strength in large part to the conservative business principles and thoughtful management strategies that have shaped our company since its inception.
We believe that the key to our success lies in our commitment to our clients as well as to these fundamental tenets:
• Understanding the whole picture• Long-term perspective• Research & due diligence• Diversification & asset allocation
• Risk management• Manager selection & monitoring• Account protection• Planning for the future
Disclosures
Holding stocks for the long term does not ensure a profitable outcome. Investing involves risk and investors may incur a profit or a loss. Standard deviation measures the fluctuations of returns around the arithmetic average return of investment. The higher the standard deviation, the greater the variability (and thus risk) of the investment returns. An inverse relationship typically exists between interest rate movements and fixed income prices. Generally, when interest rates rise, fixed income prices fall, and when interest rates fall, fixed income prices generally rise.
Investing in small-cap stocks generally involves greater risks and, therefore, may not be appropriate for every investor. U.S. government bonds and Treasury bills are guaranteed by the U.S. government and, if held to maturity, offer a fixed rate of return and guaranteed principal value. U.S. government bonds are issued and guaranteed as to the timely payment of principal and interest by the federal government. Treasury bills are certificates reflecting short-term (less than one year) obligations of the U.S. government.
Sean C Suarez, WMS Financial Advisor, Wealth Management Specialist
1301 Riverplace Blvd., Suite 1900Jacksonville, FL 32207
904-858-4100 Toll Free: 800-363-9652
http://www.fourcornerswealth.com
©2009 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC
