Letter to Our Clients - October 2009

October 2009


Dear Clients and Friends:

A.What a Year – and yet??!

The 12 month period from October 1, 2008, to September 30, 2009, had to have been the most frightening year for investors in our lifetimes.And yet, when these 12 months were over, the S&P 500 (an unmanaged index in which you cannot invest directly) was down less than 7%.7%!This is a normal down year – even though the journey was certainly not “normal.”

Of course, this index is still down over 30% from its high in October 2007, and I do not want to minimize the impact this has had on our financial health.Yet why should we treat the market levels of October, 2007, as the benchmark for what financial markets were “worth”?I believe it was overstated then, just as it was in March, 2000, when it also reached an all-time high.Neither, in my opinion, was the market worth where it stood in March, 2009.Given the fluctuation of an emotion-led investor-driven index, I think a good case can be made that today the market is worth...very close to where it is.

Certainly the economy is dramatically different today compared to a year ago.And pessimism prevails.Most of you are not optimistic about the economy or the stock markets to move forward from here.Recent reports indicate that about 45% of professional money managers are “bearish,” and only about 35% “bullish.”All of this is good news for investors.Why?Because as a writer quoted in the Financial Times phrased it, “train wrecks seldom happen when people are watching for them.”

B. The Dow Jones Average at 10,000.Time to ...???

I am going to switch conversation from the S&P 500 to a different unmanaged index, the Dow Jones Industrial Average (composed of only 30 companies).I will use this because it is the index most widely quoted, and while a less valid representation of the overall stock market, it is close enough to illustrate my points.

The Dow Jones Average now is very close to 10,000.I have read that many individual investors are feeling that at this level the market has shown enough stability that they are ready to start investing again.

1. I think this is the right idea for the wrong reason.

Wrong, because the market is no “safer” or more stable now than it was at 14,000, or 6,500.

Right, because people who need their money to grow over time should always be in the stock market, to some extent, and should never be out of it altogether.

2. What to do... now?!

If you remember how you felt during the most gloomy periods of the last year, now is a very good time to adjust your stock, bond, money market and alternative percentages.I hope you remember that during the depth of the downturn, I was urging you to not react to become more conservative.I encouraged you to remember your investment strategy and stay with it.(I invite you to re-read the client letter of October 8, 2008.Go to our website, click on “Letter to Clients,” then on “Letters Archive,” and the on the October 8th letter.)

Now I am urging – urging! – you to contact us to revisit your strategy.

If in March you believed you were positioned for too much risk, now is the time to change your asset mix.

On the other hand, if you have been sitting on a significant amount of savings (bank deposits or money market accounts), now is the time to implement an investment strategy that can give you growth in up markets without keeping you awake in down markets.

Many investors make their buy and sell decisions based upon what they think the economy or the stock market will do.Often their information comes from TV/print “experts.”This seldom works.I believe you will obtain better results developing an investment strategy, and then adhering to it.Doing so should position you for acceptable gain in up markets, yet you should sleep better in down times.Equally important, it should make it easier to track your progress against your goals.

Thank you again for the opportunity to work with you.I hope Fall and the upcoming holidays bring you good health and happiness...and prosperity.

Best wishes,

Robert K. Haley, JD, CFP®, AIF®