Tuesday, September 30, 2008

Private Client Commentary - 777 point drop

Dear Clients,

Yesterday's 777 point drop was the biggest one day point decline in the history of the Dow Jones Industrial Average. Some say it felt like black Monday, October 19, 1987, when the Dow dropped 508 points. There is a subtle difference however in the magnitude of each decline - yesterday's amounted to a decline of 7+%, while the drop on October 19, 1987 was a whopping 23%. For yesterday to have matched Black Monday, the Dow would have had to drop 2,300 points. Now how do you think that would have felt? Talk about the end of the world!

So, as you can see, as unsettling as yesterday was, we've seen worse. I was there in '87, it was the third year of my career, and yes I know what you're thinking - I am a lot older than I look.

Of course the question now is, do we hang in there and continue to ride this roller coaster, or do we jump off and wait for the ride to end - without us on it. I think the roller coaster is a fitting analogy, in that about the only way to get seriously hurt during a roller coaster ride is to jump off right in the middle of it. By the way, for the twelve months immediately following that "Black Monday" in '87, the Dow was up 22.9%.

It's very clear; the stock market wants the rescue package. And, based on the current state of the credit markets, Main Street may not think so, but (in the short-run anyway) they may need it even worse.

As odd as this may sound, and assuming Wall Street has it right (not that they do necessarily), the best thing for everyone may very well be another big sell off in the stock market today. As I suggested in my last commentary, yesterday's decline had nothing to do with fundamentals and everything to do with emotion - the market sent a strong message (right or wrong) to the politicians that they need to stop politicking and get something constructive done.

So, for just this moment, think of the market as an emotional barometer, or perhaps a messenger to Washington - and keep that thought if you decide to take a look at your September brokerage statement.

Everything you owned back when the market peaked last October is still there. In fact, since most of you reinvest your dividends and capital gains, you have noticeably more shares than you did at that time. Which means you've been doing what smart investors do - buying more as prices decline. And you youngsters who are putting money into your 401(k) plans (as long as you're well diversified) should be grinning from ear to ear - opportunities like this (to pile up shares) don't come very often.

You'll no doubt be hearing from me again soon.

Take care,

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